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Finra Series-7 Exam - Topic 7 Question 25 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 the option expires without being exercised, how is the premium expense treated by Bubba?
A) as a $600 capital loss
B) as a $600 capital gain
C) $600 is added to his acquisition cost for the stock
D) $600 is held in abeyance until the stock is eventually sold

Finra Series-7 Exam - Topic 7 Question 25 Discussion

Actual exam question for Finra's Series-7 exam
Question #: 25
Topic #: 7
[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 the option expires without being exercised, how is the premium expense treated by Bubba?

Show Suggested Answer Hide Answer
Suggested 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.


by Jina at May 06, 2022, 04:16 PM

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Audria
10 months ago
I disagree, it should be treated as a capital gain.
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Vivan
10 months ago
Surprised this isn't more straightforward!
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Tamera
11 months ago
I think it adds to the acquisition cost, right?
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Roxane
11 months ago
Definitely a capital loss, no doubt about it!
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Cherri
11 months ago
The premium is a sunk cost if the option expires.
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Kiera
11 months ago
I think it’s option C, where the $600 is added to the acquisition cost. That seems to make sense based on what we studied about options.
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Kirk
11 months ago
I remember practicing a similar question where the premium was added to the acquisition cost, but I can't recall if that applies here too.
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Ronald
11 months ago
I think the premium is treated as a capital loss, but I'm not entirely sure if it counts as a $600 loss or something else.
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Yolande
11 months ago
I feel like the premium just disappears if the option expires, but does that mean it’s a capital loss? I’m confused about how that works.
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Lai
11 months ago
Hmm, this one seems a bit tricky. I'll need to think it through carefully.
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Ettie
11 months ago
I think I've seen questions like this before; isn't an alias record often recommended for pointing to an Application Load Balancer?
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Francesco
11 months ago
I'm pretty sure the answer is B. If the SWI= statement is invalid, the switch should just load the first SWI image it finds on the flash.
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