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. If the option expires without being exercised, how is the premium expense treated by Bubba?
  1. as a $600 capital loss
  2. as a $600 capital gain
  3. $600 is added to his acquisition cost for the stock
  4. $600 is held in abeyance until the stock is eventually sold
Explanation
Answer: A - a $600 capital loss. The amount of premium paid is the cost and the recovery is zero, resulting in a $600 capital loss.
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