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Ask Alan #175 – What is My Cost Basis?

Alan answers a question posed by Andy, who asks:

In Ask Alan video #3, BWLD was bought at $82.40 and the $80.00 call was sold for $4.40. Five days before expiration, BWLD was at $84.50 and the cost to buy back the option was $4.80. What should I use as the cost-basis if I did buy back the option $82.40 or $80.00?
Thanks for your help.
Andy

——— It’s the 2nd Wednesday of the month. Time for another original episode of Ask Alan. AA#175, “What is My Cost Basis?” If you want more “Ask Alan” videos, you can! Become a premium member today, and tune in to the educational power of the complete library!



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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

6 Responses to “Ask Alan #175 – What is My Cost Basis?”

  1. Terrance R. October 14, 2020 2:33 am #

    Hi Alan,

    I am a new premiere member. I have been trading for just over 2 months and I haven’t handled stock options whose stocks rise early in the contract and then drop late in the contract.

    I haven’t done anything when the stock rose way above the strike price which can’t be right. It happened with Draft Kings (DKNG) and SHLL which became Hylion HYLN. I had a covered call with Draft Kings and a Put Credit Spread with HYLN. It can give you the details if it helps. What should I do when the stock rises quick and early is my question?

    Separate question, you know a site that shows historical Options prices?

    Thank you,
    Terrence R.

  2. Alan Ellman October 14, 2020 5:02 pm #

    Premium members:

    This week’s 4-page report of top-performing ETFs and analysis of the top-3 performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly option and implied volatility stats are also incorporated.

    The mid-week market tone is located on page 1 of the report.

    For your convenience, here is the link to login to the premium site:

    https://www.thebluecollarinvestor.com/member/login.php

    NOT A PREMIUM MEMBER? Check out this link:

    https://www.thebluecollarinvestor.com/membership.shtml

    Alan and the BCI team

  3. Alan Ellman October 14, 2020 5:03 pm #

    Premium members:

    The Blue Chip report (Dow 30) for the November contracts will be uploaded to your member site on Thursday October 15th.

    Alan

  4. Ketan October 15, 2020 2:04 am #

    Hi Alan,

    I am a new member and I am learning a lot.

    I read your most recent ETF report and I noticed that you mentioned you will move to 80% cash. Can you expand or perhaps detail that move. What will be your decision process? Which stocks to sell? How to get out of a covered call or put position?

    When will you go back to your normal trading strategy?

    Thanks
    Ketan

    • Alan Ellman October 15, 2020 6:13 am #

      Ketan,

      My commentary on the member reports is not a call to action but rather a sharing of my plan, based on my personal risk-tolerance, regarding the upcoming election.

      Once the October contracts expire tomorrow, I will use weekly options on 20% of the cash value of my portfolios. I will avoid the week of the election retaining some broad market index funds through the election.

      I will add cash post-election once the volatility subsides, probably a few days but that depends on when the final results are reported and a peaceful transition (if there is a change in administration) is apparent.

      Alan

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