Short Put Effective Purchase Price
Effective per-share cost basis if a short put is assigned: strike price minus premium received. Reflects that the premium reduces the net price you pay for the assigned shares.
When to use: Use to evaluate the worst-case acquisition cost on a cash-secured or naked put. If the underlying drops below this number at expiration, you take a real loss; above it, you walk away even or ahead.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| EffectivePrice | Effective Price | Effective per-share price after accounting for premium | $ |
| Strike | Strike Price | Exercise price of the option contract | $ |
| Premium | Premium per Share | Cash credit received per share for selling the option | $ |
Real-Life Examples
Example 1: $100 Strike, $2.50 Premium
You sold a $100-strike put for $2.50 of premium. The put is assigned at expiration.
Given
Step-by-Step
Your effective entry on the assigned shares is $97.50 — a 2.5% discount to the strike. Above $97.50 at expiration the trade is profitable; below it, you sit on a paper loss equal to (Stock − $97.50) per share.
Frequently Asked Questions
Yes — algebraically. The buyer of the put profits below Strike − Premium; the seller of the put owns shares effectively at Strike − Premium. They are the two sides of the same trade.
For a per-share commission of c, the seller's effective price is Strike − Premium + c (paying it lifts your basis). For typical retail trades the adjustment is a few cents and rarely material.