Assignment of the Week · Puzzle #1
Would you take this assignment? #1: Assigned on a dip
The scenario
- $40 put sold for $1.00
- Stock closes at $38
- Assigned 100 shares
You sold a $40 put for $1.00. The stock closes at $38 and you're assigned 100 shares. What's your cost basis, and what's your paper loss? Would you take this assignment?
Work it out first (the wheel calculator helps), then open the answer.
Show the answer and the math
Short answer: Cost basis $39.00 a share ($3,900). Paper loss $100, half of what buying outright at $40 would show.
Worked math
- Cost basis: $40 strike − $1.00 premium = $39.00 per share, or $3,900 for 100 shares.
- Paper loss: 100 shares × $38 = $3,800 market value. $3,800 − $3,900 = −$100.
- Compared with buying stock: Buying 100 shares outright at $40 would be −$200 at $38. The premium cut the drawdown in half.
- Return on capital if it had expired: $100 ÷ $4,000 collateral = 2.5% for the period.
The takeaway
Assignment isn't a failure if you picked a stock you were happy to own at $39. The next step is a covered call at or above your $39 basis, so being called away never locks in a loss. If you would not want these shares at $39, the mistake happened when you sold the put, not at assignment.
Run your own numbers, then read the full cycle
Plug any put or call into the free, no-signup wheel calculator to see return on capital, annualized return and breakeven side by side.
The whole cycle (cash-secured put, assignment, covered call, and what to do when it goes wrong) is laid out step by step in Spin the Wheel, Cash the Checks by Logan Sterling (Kindle, $6.99, or free on Kindle Unlimited).
Hypothetical numbers for teaching, not a trade recommendation. Educational only, not financial advice. Options involve risk. Selling options can result in substantial losses, and no particular result or income is guaranteed. See the full disclaimer.