Series 7 practice questionhardOptions — Bull Put Spread Breakeven
An investor writes 1 ABC Sep 50 put at $6 and buys 1 ABC Sep 40 put at $1 (bull put spread). At expiration, ABC is at $46. What is the gain or loss?
- AGain of $500
- BGain of $100✓ Correct answer
- CLoss of $400
- DLoss of $100
Explanation
Why B — Gain of $100
Net credit received = $6 - $1 = $5. At $46, the short 50 put is worth $4 ($50 - $46), the long 40 put expires worthless. Loss on the short put = $4. Profit = net credit - loss = $5 - $4 = $1 per share, or $100. The breakeven was $45 ($50 - $5), and the stock at $46 is just above it.
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