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Secured put option assignment and cost basis

Forum|Forum|2 years ago
April 1, 2024
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A secured put option got assigned eg SQQQ put $10.50 (E-Trade). Cost of this option is eg $5

A buy transaction got executed $10.50*100 = $1050

From what I understand, the cost basis of these shares is ( $1050-$5)/100 = $10.45

However, Etrade reported a different cost basis eg $10.25.

And their comments is " ... The cost basis for this option utilizes the Fair Market Value of the option at the time of assignment as a part of the cost basis. Our Cost Basis Team has confirmed this is reporting accurately. .."

What is the correct way for computing this cost basis ?

Pls advise.

Thanks!

TurboTax Home & Biz Windows

Best answer by DavidD66

I say the cost basis is $10.45 per share. According to IRS Publication 550 Investment Income and Expenses:

If a put you write is exercised and you buy the underlying stock, decrease your basis in the stock by the amount you received for the put. Your holding period for the stock begins on the date you buy it, not on the date you wrote the put.

If the cost basis on the 1099-B is reported to the IRS and you want to adjust it, after entering the transaction where you can indicate that the cost basis is incorrect and adjust it.

Was this part of a complex option strategy, or did you simply sell/write a put on the underlying stock?

D

DavidD66Answer

I say the cost basis is $10.45 per share. According to IRS Publication 550 Investment Income and Expenses:

If a put you write is exercised and you buy the underlying stock, decrease your basis in the stock by the amount you received for the put. Your holding period for the stock begins on the date you buy it, not on the date you wrote the put.

If the cost basis on the 1099-B is reported to the IRS and you want to adjust it, after entering the transaction where you can indicate that the cost basis is incorrect and adjust it.

Was this part of a complex option strategy, or did you simply sell/write a put on the underlying stock?

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