Finra Series-7 Exam - Topic 5 Question 23 Discussion

Actual exam question for Finra's Series-7 exam

Question #: 23
Topic #: 5

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?

Aa $600 capital loss

Bneither profit nor loss

Ccannot be determined without knowing the market price of XYZ upon exercise

Dthis is a wash sale and cannot be included in the investor's tax calculations

Show Suggested Answer

Suggested 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.

by Charlene at May 05, 2022, 06:10 AM

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Joana

4 months ago

Wait, a $600 loss? That seems high for just a put!

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Percy

4 months ago

Agree, option exercise can complicate things.

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Ashleigh

4 months ago

Definitely need the market price to know for sure!

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Rosalia

4 months ago

I think it's a wash sale, so no tax impact.

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Nichelle

5 months ago

Bubba paid $600 for the put option.

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Muriel

5 months ago

I vaguely recall something about wash sales, but I’m not entirely clear if that applies here since he actually exercised the put.

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Harris

5 months ago

I think this is similar to a practice question we did on options and tax implications. The premium paid for the put might come into play here.

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Francesco

5 months ago

I remember something about how exercising a put option can affect capital gains, but I'm not sure if it results in a loss or not.

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Jose

5 months ago

I feel like the market price of XYZ at the time of exercise is crucial for determining the tax consequence. Could it really be that uncertain?

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Mose

5 months ago

Hmm, this one seems tricky. I'll need to carefully read through the options and think about the requirements for creating a distributed share.

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Janey

5 months ago

Hmm, I'm not sure about the download manager option. I think I'll go with the firewall and system updates instead.

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