Series 7 practice questionmediumOptions — Uncovered Put Breakeven
An investor writes 1 uncovered PQR Dec 30 put at $2.50. What is the breakeven point?
- A$27.50✓ Correct answer
- B$30.00
- C$32.50
- D$25.00
Explanation
Why A — $27.50
The breakeven for a short put is the strike price minus the premium received: $30 - $2.50 = $27.50. At $27.50, the writer's $2.50 obligation (buying at $30 when stock is at $27.50) equals the $2.50 premium received. Below $27.50, the writer incurs net losses.
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