Series 7 Exam Question 339: Answer and Explanation

Question: 339

An investor purchases 300 shares of DUD Corp. at $45 per share and purchases 3 DUD Oct 40 puts at 6. What is the customer's break-even point?

• A. 39
• B. 45
• C. 46
• D. 51

Correct Answer: D

Explanation:

D. The easiest way to calculate the break-even point for stock/option problems is to take a look at what's happening. This investor purchased the stock for $45 per share and then purchased the options for $6 per share. The investor paid $51 ($45 + $6) per share out of pocket, so the investor needs the stock to be at $51 per share in order to break even.