Series 7 - General Securities Representative Exam
Jimbob sold 100 shares of ABC stock short @ 71 and buys one ABC July 75 call @ 3. If ABC rises to 80 and Jimbob exercises the call, what is the gain or loss on his position?
To figure it out, just follow the money. He lost $900 on the 100 shares. Spent $300 on the call. At this point he has outlaid $1200. The 75 call will be worth $500 when it is exercised with the stock trading at $80.00. 1200-500 = 700/ It is a $700 Loss