Series 7 practice questionmediumOptions — Writing Puts for Acquisition
An investor writes 1 ABC Jul 40 put at $3. If assigned, what is the effective purchase price of the stock?
- A$40
- B$43
- C$37✓ Correct answer
- D$35
Explanation
Why C — $37
If assigned, the put writer buys the stock at the $40 strike price. However, the $3 premium received reduces the effective cost basis to $40 - $3 = $37 per share. Writing puts to acquire stock at a discount is a common strategy for investors who want to buy a stock at a lower price than the current market.
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