Covered-call cost basis after a roll

By the founder of yourfinance·Published 2026-08-12 ·Update history: 2026-08-12 — first published.

Ask a covered-call seller for their cost basis and you will get one number said with confidence. Ask which of the four definitions of cost basis they mean, and the confidence usually disappears. After a roll, the four numbers all disagree — and using the wrong one changes real decisions: where you are willing to be called away, whether a “loss” on the shares is actually a loss, and how much cushion you think you have.

Four things people mean by “cost basis”

1. Raw basis: What you paid per share, full stop. Buy 300 shares at 21.50 and your raw basis is 21.50 until you buy or sell shares. Option activity never moves it.
2. Broker-displayed basis: Whatever your broker's position screen shows. Brokers differ in whether and when they fold option premium, corporate actions, or fees into this number. It is an interface choice, not an accounting standard — treat it as a display, not a source of truth.
3. Tax basis: Defined by your tax jurisdiction. Option premium is frequently taxed on its own schedule rather than adjusting share basis, and rules differ by country and instrument. Only your tax rules and your tax preparer define this one.
4. Strategy-adjusted basis: The decision-making number: raw basis reduced by the option premium you have actually kept in the current cycle. The whole question is what “kept” means — and that is where the common mistake lives.

The settled-only rule

yourfinance computes strategy-adjusted basis with one rule:

Only settled option P&L adjusts basis. A credit adjusts your basis when its option has expired, been assigned, been called away, or been bought to close — and not one day earlier. An open credit is a liability with your name on it, not a discount you already earned.

adjusted basis = raw basis − (settled net option P&L of the current cycle ÷ current shares)

Worked by hand

The same scenario as the premium vs realized guide: 300 shares of a made-up ticker DEMO at 21.50, no fees for arithmetic clarity.

Step	Event	Settled option P&L to date	Raw basis	Adjusted basis
1	Buy 300 shares at 21.50	0.00	21.50	21.50
2	Sell to open 3 calls, strike 22.00, credit 0.60 (+180.00, open)	0.00	21.50	21.50 — unchanged: the credit has not settled
3	Buy to close at 0.10 (−30.00) — the leg settles	150.00	21.50	21.00
4	Sell to open 3 replacement calls, strike 23.00, credit 0.80 (+240.00, open)	150.00	21.50	21.00 — unchanged: the new credit is open

The step-3 adjustment, in full:

settled P&L = 180.00 credit − 30.00 closing debit = 150.00 per-share = 150.00 ÷ 300 shares = 0.50 adjusted = 21.50 − 0.50 = 21.00

The shortcut that gets it wrong: 20.10

The common spreadsheet shortcut subtracts everything collected:

21.50 − (420.00 ÷ 300) = 21.50 − 1.40 = 20.10 ← wrong

That 20.10 treats the open 240.00 as already yours. If DEMO rips through 23.00 and you buy the replacement call back at a loss, the “basis” you were making decisions with never existed. The 0.90 gap between 20.10 and 21.00 is exactly the open credit you have not earned yet (240.00 ÷ 300 = 0.80) plus the closing debit the shortcut forgot (30.00 ÷ 300 = 0.10).

Track it in your own sheet

The worksheet below is the four-step ledger above as a CSV template. The discipline it enforces is a single column: settled_option_pnl_to_date. Adjusted basis is always derived from that column — never from a running total of credits.

Download the cost-basis worksheet (CSV) Pre-filled with the example above. Replace the rows with your own cycle.

What this method does not mean

It is not your tax basis. Do not put the adjusted number on a tax return. Raw basis, broker basis, tax basis, and strategy-adjusted basis can legitimately be four different numbers at once.
Adjusted basis is per cycle. When all shares leave the account the cycle completes; a later re-entry starts a new cycle and does not inherit premium from the completed one.
Partial calls do not spread. If only part of the lot is called away, the settled premium of that call leaves with the shares it covered — it never lowers the basis of shares that call did not cover.
Fees count. The example omits them for clarity; the definition is settled credit minus closing debit and option fees.
Demo data. These figures come from a worked example on a made-up ticker. They demonstrate arithmetic, not results.

See both numbers side by side

The yourfinance read-only demo shows this exact position — raw basis 21.50 next to adjusted basis 21.00, and collected 420.00 next to realized 150.00 — in the real application, in your browser.

Run the interactive demo