Practice Quiz

FINRA Series 7

Category - Series 7

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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
Explanation
Answer: A - a $600 loss. The strike price and Bubba’s purchase price are the same. He has a $600 loss on the option for the premium he paid.
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