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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 Bubba sells the stock at $45 in July, what is his resulting tax liability for that transaction?
Suggested Answer: C
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a $1,000 gain. There is a $1,000 gain on the stock. The option is a separate capital asset.
11 comments · newest first
FL
Fletcher
1 year ago
Wait, are we sure about that? Seems too straightforward.
JO
Joye
1 year ago
I agree, it should be a $1,000 gain after all.
IR
Irma
1 year ago
Isn't the put option affecting his tax liability?
GW
Gwen
1 year ago
I think he has to account for the premium too.
DE
Deandrea
1 year ago
He bought at $35 and sold at $45, so that's a gain.
RE
Remedios
1 year ago
I believe the gain would be $1,000 since he sold at $45 and bought at $35, but I’m not entirely sure how the premium plays into it.
JA
Jacklyn
1 year ago
I’m a bit confused about the put option. Does it really defer the tax liability until it’s closed?
DO
Dorsey
1 year ago
This question feels familiar; I think we did one like it in class where the gain was calculated after selling the stock.
IR
Irma
1 year ago
I think I remember that selling the stock triggers a taxable event, but I'm not sure how the put affects that.
CI
Ciara
1 year ago
I think this question is asking how Vlocity Cart represents products that have a default quantity of 0. I'll need to think carefully about the different options and what they might mean.
MI
Mi
1 year ago
Okay, let me see. Chatter Free Users can access Accounts and Contacts, so I'm going to go with True on this one.