Series 7 Exam Question 93: Answer and Explanation

Question: 93

An investor is long 240,000 LMN calls. Which of the following additional positions may the investor have without violating position limits (position limit 250,000)?

• A. Long 40,000 LMN calls
• B. Long 40,000 LMN puts
• C. Short 60,000 OPQ calls
• D. Short 80,000 LMN puts

Correct Answer: B

Explanation:

B. Selling calls and buying puts is bearish. So, the investor has 215,000 (185,000 + 30,000) bearish contracts for LMN. If the investor buys 40,000 more puts, the investor would have 255,000 bearish contracts and be in violation of OCC (Options Clearing Corporation) rules in this stock. Answer (C) is not a violation because the option is based on a different stock.