Finra Series-7 Exam - Topic 1 Question 39 Discussion

Actual exam question for Finra's Series-7 exam

Question #: 39
Topic #: 1

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.

What is Bubba's maximum possible profit?

A$500

B$600

C$1,000

Dunlimited

Show Suggested Answer

Suggested Answer: B

$600. The maximum profit is the difference between strike prices less the debit amount. The debit amount is $4 ($7 - $3). The difference between strike prices is $10 ($60 - $50). Multiply the $6 difference by 100, which is the number of shares on one option.

by Mattie at May 03, 2022, 05:56 AM

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Natalie

7 months ago

He pays $4 net for the spread, so $600 is spot on!

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Luke

7 months ago

Wait, how can he make that much? Sounds too good to be true.

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Leonie

7 months ago

Nope, it's definitely $600.

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Vivienne

7 months ago

I think it's actually $1,000, right?

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Maia

8 months ago

Maximum profit is $600 if it hits $60.

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Carylon

8 months ago

I feel like the answer might be $600, but I’m not confident. I need to double-check how the premiums affect the profit calculation.

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Valentine

8 months ago

If I recall correctly, the max profit for a call spread is capped, so it can't be unlimited. I just can't remember the exact numbers involved.

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Joanna

8 months ago

I remember a similar question where we had to find the profit from a spread. I think the max profit here would be the difference between the strikes minus the cost of the calls.

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Destiny

8 months ago

I think the maximum profit is related to the difference between the strike prices minus the net premium paid, but I'm not entirely sure how to calculate that.

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Lang

8 months ago

I'm a bit confused on this one. I'll need to review my notes and the course material to make sure I understand the correct way to count FTRs for an EI.

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Lynelle

8 months ago

Okay, I've got this. The key here is data privacy - that's the compliance requirement we need to address in the design. The other options are not relevant to this specific scenario.

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