SIE Exam Practice Question 326
Question: 326
An investor sells short 100 shares of XYZ stock at 61 and buys 1 XYZ 65 call for 1.50 When the market price of ABC is 62. What is the investor's breakeven on the combined positions?
Correct Answer: B
Explanation:
B - When an investor buys a call to protect a short stock position, the investor will breakeven when the stock price is equal to the price at which the stock was sold short minus the call premium paid. 61 – 1.50 = $59.50. The investor is bearish and will make money only when the short position can be covered at a price below this point because of the premium that was paid for the call.
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