Question

Question 47

A customer buys an ABC July $50 call in a non-qualified account paying a $3 premium. Seven months later, if the customer has sold the option @$8 instead of exercising the option, the profit would be taxable (ignoring brokerage costs) at:

• a $500 short term capital gain
• a $800 long term capital gain
• As an ordinary option gain of $700
• an ordinary loss of $500
• none of the above is correct

Question 48

All of the following short sell (bearish) trades can be executed in a cash account except ____?

• short sell common stock
• short sell preferred stock
• uncovered call option
• uncovered put option
• none of the above

Question 221 pts

On Thursday, February 8, an investor buys five XYZ August 70 calls at 3 and 1/2 each. At the time of the purchase, XYZ is trading at 68 and 1/2 per share. Assume that at the time of expiration XYZ is trading at 71 and the calls are exercised. What would the investor's profit or loss be?

• $1,750 loss
• $1,250 loss
• $100 profit
• $500 profit
• none of the above

Answer 1

47.If you are the holder of a put or call option and you sell it before it expires,your gain or loss is reported as a short term or long term capital gain depending on how long you held the option.If you held the option for 365 days or less before you sold it,it is short term capital gain.

Since in the given question,option is held for less than 365 days,hence loss or gain from sale of such option is short term capital gain or (loss)

Calculation of short term capital gain or (loss)

Short term capital gain or (loss)=Sale proceeds-cost of option

=($8-$3)*100

=$500

Thus,correct option is $500 short term capital gain.