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Finra Series-7 Exam - Topic 3 Question 24 Discussion

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?
C) a $1,000 gain
A) no liability established until the offsetting option position is closed
B) a $400 gain
D) a $400 capital loss

Finra Series-7 Exam - Topic 3 Question 24 Discussion

Actual exam question for Finra's Series-7 exam
Question #: 24
Topic #: 3
[All Series-7 Questions]

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?

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Suggested Answer: C

a $1,000 gain. There is a $1,000 gain on the stock. The option is a separate capital asset.


by Cheryl at May 08, 2022, 03:32 PM

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Fletcher
8 months ago
Wait, are we sure about that? Seems too straightforward.
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Joye
9 months ago
I agree, it should be a $1,000 gain after all.
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Irma
9 months ago
Isn't the put option affecting his tax liability?
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Gwen
9 months ago
I think he has to account for the premium too.
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Deandrea
9 months ago
He bought at $35 and sold at $45, so that's a gain.
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Remedios
9 months 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.
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Jacklyn
9 months ago
I’m a bit confused about the put option. Does it really defer the tax liability until it’s closed?
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Dorsey
9 months ago
This question feels familiar; I think we did one like it in class where the gain was calculated after selling the stock.
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Irma
9 months ago
I think I remember that selling the stock triggers a taxable event, but I'm not sure how the put affects that.
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Ciara
9 months 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.
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Mi
10 months ago
Okay, let me see. Chatter Free Users can access Accounts and Contacts, so I'm going to go with True on this one.
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