You are correct. You have a short-term capital gain in the amount of (premium, less commission).
And for tax purposes, the cost basis remains at the original $2,000. I was referring to the informal bookkeeping in which the investor can consider that he/she paid $2,000 and has $400 is cash (less taxes). That investor can think of owning the stock at the reduced price (lower basis). But in legal terms, and in taxpayer terms, you are correct.
I apologize for not being clear.
July 28, 2010 Covered Call Writing II At the end of the year, if your stock is trading at less than $20 per share, the option expires worthless and your cost basis has been reduced from $2,000 to $1,600. That's a very good result - especially when the stock has not performed as expected.
Mark, Maybe I don't understand your point, however, my understanding is that when an option expires worthless you, as the writer of the option, report a short term capital gain in the amount received for the call written. The cost basis of the underlying stock is not adjusted. (IRS Pub 550 page 58) Jerry.