Put Option Exercise Tax Sale Proceeds Calculation
An investor holding stock bought at $45 buys an ABC 50 Put at 3. The investor exercises the put to sell the stock. For tax purposes, what are the sales proceeds per share?
When a put is exercised, the sales proceeds realized from the stock sale equal the Put Strike Price MINUS the Put Premium paid ($50 - $3 = $47).
Complete Analysis & Legal Rationale
The investor sells stock at the $50 strike price, but paid $3 for the put option. Net sales proceeds = $50 - $3 = $47 per share. Since cost was $45, capital gain is $47 - $45 = $2.00 per share.
Mathematical Step-by-Step Derivation
- Step 1: Put Strike Price = $50.00.
- Step 2: Put Premium Paid = $3.00.
- Step 3: Net Sales Proceeds = $50.00 - $3.00 = $47.00.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Strike ($50) minus premium paid ($3) = $47 net sale proceeds.
Ignores the cost of the put option.
Adds the premium to strike instead of subtracting.
Subtracts premium from stock cost instead of strike price.
Official Standard: Put premium reduces effective gross sale proceeds upon exercise.