An investor who exercises a put must subtract the put’s premium from the option’s strike price to determine their proceeds from the sale. A put writer who is exercising a put must subtract the premium from the strike price to determine their cost base for the stock. An investor who is short a put and who is assigned the stock will subtract the premium received from the strike price to determine their cost base for tax purposes.


An investor purchases 1 CVB October 70 put at 3. If CVB falls to 60 and the investor purchases the stock and exercises the put, the investor will have a $700 capital gain. The investor purchased the stock at 60 and subtracts the premium paid for the put from the strike price to determine the sale proceeds. In this case 70 – 3 = 67.

An investor who sells 1 KLM November 80 put at 9 and who is assigned the stock will have a cost base for the stock of 71.

Need Help Passing Your Series 4 Exam?

Protective Puts

Related Articles
  1. Trading

    Profiting From Stock Declines: Bear Put Spread Vs. Long Put

    If you're bearish, you should compare the risk/reward characteristics of these two strategies.
  2. Trading

    Introduction To Put Writing

    Learn about a strategy that may be appropriate if you have a positive outlook on a stock.
  3. Trading

    Bear Put Spreads: A Roaring Alternative To Short Selling

    This strategy allows you to stop chasing losses when you're feeling bearish.
  4. Trading

    When Should I Sell A Put Option Vs A Call Option?

    Beginning traders often ask not when they should buy options, but rather, when they should sell them.
  5. Trading

    Prices Plunging? Buy A Put!

    Investors can make money on a falling stock by going long on a put.
  6. Trading

    Solving Mixed Options Problems On The Series 7

    Learn to ace the questions that involve both options contracts and stock positions.
  7. Trading

    What's the Strike Price?

    The strike price is the price at which a derivative can be exercised, and refers to the price of the derivative’s underlying asset. In a call option, the strike price is the price at which the ...
  8. Managing Wealth

    Practical And Affordable Hedging Strategies

    Learn how to find and use the most cost-effective ways to transfer risk.
  9. Taxes

    Tax Treatment For Call & Put Options

    A brief intro to the complex US tax rules governing call and put options with examples of some common scenarios.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center