Series 7 practice questionhardOptions — Spread Breakeven
An investor buys 1 ABC Jun 65 put at $8 and writes 1 ABC Jun 55 put at $3. What is the breakeven point?
- A$63
- B$60✓ Correct answer
- C$57
- D$55
Explanation
Why B — $60
This is a bear put spread (debit spread). Net premium paid = $8 - $3 = $5. Breakeven for a bear put spread = higher strike - net debit = $65 - $5 = $60. At $60, the long 65 put is worth $5, which exactly covers the $5 net debit. Below $60, the position profits (max at $55 or below).
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