Ok thanks. Wasn’t sure if he sold his 1.30$ calls separate from his 1.00$ calls since his average remaining position is 1.05$, maybe I just can’t math:)
So it’s all basic math. You don’t need to separate them out, technically speaking. The only reason to do that would be for tax purposes. You can look into something called LIFO and FIFO which does let you separate them out for tax purposes.
When I say that we sell certain lots, I’m just speaking more theoretically.
When you buy five contracts at $1.00 and 7 contracts at $1.30, it’s all combined as one position. If you look at the Targaryen portfolio, we have it combined with an average cost and everything . Our average cost in Targaryen is $1.175. $1.17 and half a penny.
Effective cost basis considers what happens when you take a profit and offset that profit from the overall position.
So for example, if we have 12 contracts at an average cost of $1.17 and we sell five of those at $1.45, then we made a $.28 profit on five contracts
If we take that $.28 profit on five contracts, it essentially produces a $140 gain. If you subtract that $140 gain from the $822.50 cost basis in the remaining seven contract position, then the effective costs is $0.98 a contract.
Now the portfolio won’t reflect that. The portfolio is still going to reflect that we own seven contracts at $1.175. But the overall risk when considering the trade from the very beginning is that we only really have 7 contracts at $.98 at risk now. If the whole trade goes south from here, that’s all we really lose.
By
/ January 28, 2025 
Hmm. My brokerage combined both my spreads bought at 1.03 and 1.37 (1.24 average), so I wasn’t able to sell the 1.03 individually. Is that an issue ?
Normal. It was likely presenting this a 12 x spreads. You simply sell 5, keep 7 spreads.
Ok thanks. Wasn’t sure if he sold his 1.30$ calls separate from his 1.00$ calls since his average remaining position is 1.05$, maybe I just can’t math:)
So it’s all basic math. You don’t need to separate them out, technically speaking. The only reason to do that would be for tax purposes. You can look into something called LIFO and FIFO which does let you separate them out for tax purposes.
When I say that we sell certain lots, I’m just speaking more theoretically.
When you buy five contracts at $1.00 and 7 contracts at $1.30, it’s all combined as one position. If you look at the Targaryen portfolio, we have it combined with an average cost and everything . Our average cost in Targaryen is $1.175. $1.17 and half a penny.
Effective cost basis considers what happens when you take a profit and offset that profit from the overall position.
So for example, if we have 12 contracts at an average cost of $1.17 and we sell five of those at $1.45, then we made a $.28 profit on five contracts
If we take that $.28 profit on five contracts, it essentially produces a $140 gain. If you subtract that $140 gain from the $822.50 cost basis in the remaining seven contract position, then the effective costs is $0.98 a contract.
Now the portfolio won’t reflect that. The portfolio is still going to reflect that we own seven contracts at $1.175. But the overall risk when considering the trade from the very beginning is that we only really have 7 contracts at $.98 at risk now. If the whole trade goes south from here, that’s all we really lose.
Why? because we already booked a profit.
Thanks alot! I saw the remaining position was 1.05$ and wasn’t sure where that was coming from.