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FINRA Series 7 Exam Prep Question List

2 In mid-September, Bubba sells one XYZ February 50 call at $6. It subsequently expires without being exercised. How is the premium taxed?
  1. Bubba’s cost of the underlying stock is reduced
  2. the $600 premium is a capital gain
  3. the $600 premium constitutes ordinary income
  4. the $600 premium is rolled over into another XYZ call with the next longest expiration date.
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3 In June, Bubba bought 100 shares of XYZ at $35. In November, he bought a listed put in XYZ with a $35 strike price and a July expiration for a premium of $600. In April, Bubba exercises the put option and uses his stock for delivery. What is his resulting tax consequence?
  1. a $600 capital loss
  2. neither profit nor loss
  3. cannot be determined without knowing the market price of XYZ upon exercise
  4. this is a wash sale and cannot be included in the investor’s tax calculations
See Answer