Series 7 practice questionmediumOptions — Uncovered Call Breakeven
An investor writes 1 uncovered MNO Nov 45 call at $4. What is the breakeven point?
- A$41
- B$45
- C$49✓ Correct answer
- D$53
Explanation
Why C — $49
The breakeven for a short call is the strike price plus the premium received: $45 + $4 = $49. At $49, the $4 intrinsic value the writer must pay out equals the $4 premium received. Above $49, the writer incurs losses. The breakeven is the same whether the call is covered or uncovered.
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