How Does Selling an Option Increase the "Cost Basis" of a Hedged Position? ▴ Learn

How Does Selling an Option Increase the “Cost Basis” of a Hedged Position?

Selling an option, such as a covered call, generates premium income. This premium income is generally treated as a reduction in the net cost of acquiring the underlying asset.

For example, if you buy Bitcoin at $40,000 and sell a call for a $1,000 premium, your effective cost basis for the Bitcoin is reduced to $39,000. This lowered cost basis improves the overall profitability and breakeven point of the hedged position.

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