Series 7 Exam Question 94: Answer and Explanation

Question: 94

An investor purchased 100 shares of DEF common stock at $32 per share. Three months later with DEF trading at $33 per share, the investor wrote 1 DEF 35 call at 4. What is the investor's break-even point?

• A. $28
• B. $29
• C. $36
• D. $37

Correct Answer: A

Explanation:

A. You don't need an options chart to answer this one. This investor purchased the stock for $32 per share and then sold the call against the same stock (covered call) for $4 per share. So since the investor purchased the stock for $32 and then got $4 per share back, the break-even point is $28 ($32 – $4).