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Bubba buys one XYZ September 50 call at $7 and sells one XYZ September 60 call at $3. At that time, XYZ stock is at $55. Bubba has no other stock positions. At what must XYZ trade for Bubba to break even?
Suggested Answer: A
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$54. Bubba's position is a bullish spread. The breakeven is determined by adding the debit amount to the lower strike price. The debit amount is $4 ($7 - $3). Adding that to $50 equals $54.
11 comments · newest first
SA
Sage
1 year ago
Just to clarify, he pays $4 net for the spread.
GA
Gary
1 year ago
I thought it would be lower than that.
BR
Brandee
1 year ago
Wait, how does he break even at $57?
CO
Cornell
1 year ago
Yeah, that sounds about right!
AN
Antonio
1 year ago
Break even is at $57, right?
LA
Lashaun
1 year ago
If I remember correctly, Bubba's net cost is $4 after selling the call. So, I think he needs XYZ to be at $54 to break even, but I could be wrong.
TA
Tawny
1 year ago
I feel like the break-even is somewhere around $57, but I can't quite recall how to get there. I hope I’m not mixing it up with another strategy.
CA
Carlota
1 year ago
I practiced a similar question where we had to find the break-even point for a spread. I think it involves adding the strike price of the long call to the net premium.
NO
Nobuko
1 year ago
I think I remember that to break even, you need to consider the net premium paid for the calls. But I'm not entirely sure how to calculate that.
AL
Alisha
1 year ago
I feel pretty confident about this. In a highly centralized org like this, the main risk is likely to be a lack of coordination between different business units. That seems like the most logical answer to me.
LE
Leeann
1 year ago
Hmm, this seems pretty straightforward. I think I'll go with option B to enable the Signature Auto-Update feature. That way, the web app firewall will automatically stay up-to-date with the latest security signatures.