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FINRA Series 7

Category - Series 7

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Bubba buys one XYZ September 50 call at $7 and sells one XYZ September 60 call at $3. At that time, XYZ stock is at $55. Bubba has no other stock positions. At what must XYZ trade for Bubba to break even?

Explanation

Answer: A - $54. Bubba’s position is a bullish spread. The breakeven is determined by adding the debit amount to the lower strike price. The debit amount is $4 ($7 - $3). Adding that to $50 equals $54.

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