Cost Basis is the effective price that a trade is placed. Using stock as an example, if we were to buy 100 shares of SPY, our effective cost basis would be the price paid to acquire shares.
Here are the following ways basis can be improved:
- Covered Call
- Covered Put
- Call and Put Spreads
- Poor Man's Covered Call or Put
Essentially, cost basis improvement is a power attribute associated with the collection of credit through the sale of options.