119. Establishing Our Cost-Basis for Long-Term Holdings The Blue Collar Investor

There are 2 distinct cost-basis scenarios for covered call writing:

1. Trade initiation cost-basis:
Stock price at the time of the trade for at-the-money and out-of-the-money strikes
The strike price for in-the-money strikes as we deduct the intrinsic-value of the premium from the stock price
If we buy a stock for $52.00 and sell the $50.00 call for $3.00, $2.00 is intrinsic-value and that “buys-down” our cost-basis from $52.00 to $50.00, the strike price

2. How do we determine cost-basis on shares we have owned for long periods of time, probably purchased at a much lower price than current market value?

A real-life example with Bank of America Corp. is used to highlight the calculations.

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