Finra Series-7 Exam - Topic 7 Question 40 Discussion

Actual exam question for Finra's Series-7 exam

Question #: 40
Topic #: 7

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?

A$54

B$55

C$57

D$60

Show Suggested Answer

Suggested Answer: A

$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.

by Casie at May 07, 2022, 11:15 PM

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Sage

5 months ago

Just to clarify, he pays $4 net for the spread.

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Gary

6 months ago

I thought it would be lower than that.

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Brandee

6 months ago

Wait, how does he break even at $57?

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Cornell

6 months ago

Yeah, that sounds about right!

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Antonio

6 months ago

Break even is at $57, right?

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Lashaun

6 months 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.

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Tawny

6 months 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.

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Carlota

6 months 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.

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Nobuko

6 months 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.

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Alisha

6 months 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.

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Leeann

6 months 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.

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