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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 the option expires without being exercised, how is the premium expense treated by Bubba?
Suggested Answer: A
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a $600 capital loss. The amount of premium paid is the cost and the recovery is zero, resulting in a $600 capital loss.
12 comments · newest first
AU
Audria
1 year ago
I disagree, it should be treated as a capital gain.
VI
Vivan
1 year ago
Surprised this isn't more straightforward!
TA
Tamera
1 year ago
I think it adds to the acquisition cost, right?
RO
Roxane
1 year ago
Definitely a capital loss, no doubt about it!
CH
Cherri
1 year ago
The premium is a sunk cost if the option expires.
KI
Kiera
1 year 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.
KI
Kirk
1 year 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.
RO
Ronald
1 year 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.
YO
Yolande
1 year 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.
LA
Lai
1 year ago
Hmm, this one seems a bit tricky. I'll need to think it through carefully.
ET
Ettie
1 year ago
I think I've seen questions like this before; isn't an alias record often recommended for pointing to an Application Load Balancer?
FR
Francesco
1 year 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.