Series 7 Quiz: Calculate Option Profit And Loss
20 questions · exam conditions
0:00
Calculate Option Profit And LossQuestion 1 of 20

A speculator buys 3 XYZ Jul 200 calls at $8 when the market price of XYZ is $199. If the price of XYZ stock falls to $190 at expiration, what is the investor's total loss?

$800
$2,400
$2,700
$3,000
← Back to quizzes

Series 7 Quiz

Series 7 Quiz: Calculate Option Profit And Loss

Practice Calculate Option Profit And Loss in Series 7 with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Calculate Option Profit And Loss, giving you a quick way to practice the rules, question types, and explanations that matter most for Series 7.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A speculator buys 3 XYZ Jul 200 calls at $8 when the market price of XYZ is $199. If the price of XYZ stock falls to $190 at expiration, what is the investor's total loss?

  1. $800
  2. $2,400 (correct answer)
  3. $2,700
  4. $3,000
Explanation: For a long call option, the maximum possible loss is the entire premium paid. This occurs if the option expires out-of-the-money (i.e., the market price is at or below the strike price). Since the stock price of $190 is below the $200 strike price, the calls expire worthless. The total loss is the premium per contract ($8 x 100 = $800) multiplied by the number of contracts (3). Total loss = $800 x 3 = $2,400.

Question 2

An investor purchases 1 ABC Jan 50 call at a premium of $3. At expiration, the market price of ABC stock is $60. What is the investor's total profit?

  1. $300
  2. $700 (correct answer)
  3. $1,000
  4. $1,300
Explanation: To calculate the profit on a long call, the formula is (Market Price - Strike Price - Premium) x 100. The call is exercised because the market price (60)isabovethestrikeprice(60) is above the strike price (50). The calculation is ($60 - $50 - $3) x 100 = $7 x 100 = $700 profit.

Question 3

An investor sells 1 PQR Sep 30 put for $1.50. If the market price of PQR is $32 at expiration, what is the result for the investor?

  1. $50 loss
  2. $150 profit (correct answer)
  3. $200 loss
  4. $350 profit
Explanation: The writer of a put profits if the stock price is above the strike price at expiration. Since the market price of $32 is above the $30 strike price, the put option expires worthless. The investor's profit is the full premium received: $1.50 x 100 = $150.

Question 4

A customer creates a bull call spread by buying 1 EFG May 60 call at $5 and selling 1 EFG May 65 call at $2. What is the maximum potential gain on this position?

  1. $200 (correct answer)
  2. $300
  3. $500
  4. Unlimited
Explanation: This is a debit spread because the premium paid ($5) is greater than the premium received ($2), resulting in a net debit of $3. The maximum gain for a debit spread is the difference in strike prices minus the net debit. Max Gain = (($65 - $60) - ($5 - $2)) x 100 = ($5 - $3) x 100 = $200.

Question 5

A trader establishes a bull put spread by writing 1 QRS Jan 110 put at $7 and buying 1 QRS Jan 100 put at $2. What is the breakeven point?

  1. $95
  2. $103
  3. $105 (correct answer)
  4. $115
Explanation: This is a put credit spread, resulting in a net credit of $7 - $2 = $5. For a bull put spread, the breakeven point is calculated by subtracting the net credit from the higher strike price (the short put). Breakeven = $110 - $5 = $105.

Question 6

A client establishes a long straddle on WXY by purchasing a WXY Apr 75 call for $3 and a WXY Apr 75 put for $4. What are the breakeven points for this position?

  1. $71 and $79
  2. $72 and $78
  3. $68 and $82 (correct answer)
  4. $75 and $82
Explanation: First, find the total premium paid, which is $3 + $4 = $7. The breakeven points for a long straddle are found by adding and subtracting the total premium from the strike price. Upside breakeven: $75 + $7 = $82. Downside breakeven: $75 - $7 = $68.

Question 7

An investor establishes a bull call spread by buying 1 JKL Sep 50 call for $5 and selling 1 JKL Sep 55 call for $2. If JKL stock is trading at $54 at expiration, what is the investor's total profit or loss?

  1. $300 loss
  2. $100 profit (correct answer)
  3. $200 profit
  4. $400 profit
Explanation: First, calculate the net debit for the spread: $5 (paid) - $2 (received) = $3 net debit per share, or $300 total cost. At expiration with the stock at $54, the long 50 call is in-the-money by $4 ($54 - $50) and can be sold or exercised for a $400 gain. The short 55 call is out-of-the-money and expires worthless. The net profit is the gain from the long call minus the initial cost of the spread: $400 - $300 = $100 profit.

Question 8

An investor sells 1 ABC Mar 65 call at $2 and sells 1 ABC Mar 60 put at $3. This position is also known as a short combination. If ABC stock is trading at $62 at expiration, what is the investor's profit or loss?

  1. $300 loss
  2. $200 profit
  3. $500 profit (correct answer)
  4. $700 profit
Explanation: At a market price of $62, the Mar 65 call is out-of-the-money and expires worthless. The investor keeps the $2 premium ($200). The Mar 60 put is also out-of-the-money and expires worthless. The investor keeps the $3 premium ($300). The total profit is the sum of the premiums received: $200 + $300 = $500. This represents the maximum gain for the position, which occurs when the stock price is between the two strike prices at expiration.

Question 9

A customer establishes a bear put spread by buying 1 HJK Aug 80 put at $6 and selling 1 HJK Aug 70 put at $1. What is the breakeven point for this position?

  1. $65
  2. $74
  3. $75 (correct answer)
  4. $85
Explanation: This is a put debit spread. First, calculate the net debit: $6 (premium paid) - $1 (premium received) = $5 net debit. For a bear put spread, the breakeven point is found by subtracting the net debit from the higher strike price (the long put). Breakeven = $80 - $5 = $75.

Question 10

An investor buys 100 shares of ZZZ at $45 per share and simultaneously writes 1 ZZZ Oct 50 call for a premium of $2. The stock is called away when the market price is $52. What is the investor's total profit?

  1. $200
  2. $500
  3. $700 (correct answer)
  4. $900
Explanation: In a covered call, the investor owns the underlying stock. When the stock is called away, the investor must sell their shares at the strike price. The profit is the capital gain on the stock (up to the strike price) plus the premium received. The capital gain is $50 (Strike Price) - $45 (Stock Cost) = $5 per share. The total profit is ($5 Capital Gain + $2 Premium) x 100 shares = $700.

Question 11

A client buys 1 WXY Mar 85 put at a premium of $5. What is the breakeven point for this position?

  1. $75
  2. $80 (correct answer)
  3. $85
  4. $90
Explanation: The breakeven point for a long put option is calculated by subtracting the premium from the strike price. Therefore, the breakeven point is $85 (Strike Price) - $5 (Premium) = $80.

Question 12

A customer writes 1 naked MNO Jun 70 call for a premium of $2. At expiration, the market price of MNO is $78. What is the customer's gain or loss?

  1. $200 gain
  2. $600 loss (correct answer)
  3. $800 loss
  4. Unlimited gain
Explanation: The writer of a naked call has an obligation to sell the stock at the strike price. The breakeven point is Strike Price + Premium = $70 + $2 = $72. Since the market price of $78 is above the breakeven, the writer has a loss. The loss is calculated as (Premium Received - (Market Price - Strike Price)) x 100. This is ($2 - ($78 - $70)) x 100 = ($2 - $8) x 100 = -$6 x 100 = $600 loss.

Question 13

A customer sells 1 UVW Jun 50 call at 22 and sells 1 UVW Jun 50 put at 2.502.50. What is the maximum potential gain on this short straddle position?

  1. $50
  2. $250
  3. $450 (correct answer)
  4. Unlimited
Explanation: The maximum gain for a short straddle writer is the total premium received from selling both the call and the put. This gain is realized if the underlying stock price is exactly at the strike price at expiration, causing both options to expire worthless. Total Premium = ($2 + $2.50) x 100 = $450.

Question 14

An investor buys 200 shares of GHI at $72 per share and writes 2 GHI Dec 75 calls for a premium of $4 each. What is the breakeven point for the entire position on a per-share basis?

  1. $68 (correct answer)
  2. $71
  3. $76
  4. $79
Explanation: For a covered call position, the premium received from writing the call reduces the effective cost of the stock. The breakeven point is the stock's purchase price minus the premium received per share. Breakeven = $72 (Stock Cost) - $4 (Premium) = $68.

Question 15

An investor creates a bear call spread by selling 1 LMN Oct 40 call at $4 and buying 1 LMN Oct 45 call at $1. What is the maximum potential loss?

  1. $100
  2. $200 (correct answer)
  3. $300
  4. Unlimited
Explanation: This is a credit spread because the premium received ($4) is greater than the premium paid ($1), resulting in a net credit of $3. The maximum loss for a credit spread is the difference in strike prices minus the net credit received. Max Loss = (($45 - $40) - ($4 - $1)) x 100 = ($5 - $3) x 100 = $200.

Question 16

A client anticipates a sharp decline in XYZ stock and buys 5 XYZ Apr 100 puts at $4 per contract. At expiration, XYZ is trading at $85. What is the total profit on the position?

  1. $2,000
  2. $5,500 (correct answer)
  3. $7,500
  4. $9,500
Explanation: The investor profits because the market price (85)isbelowthestrikeprice(85) is below the strike price (100). The profit per contract is calculated as (Strike Price - Market Price - Premium) x 100, which is ($100 - $85 - $4) = $11 per share, or $1,100 per contract. Since the client purchased 5 contracts, the total profit is $1,100 x 5 = $5,500.

Question 17

A customer writes 1 DEF Oct 45 put for a premium of $3. If the stock price is $38 at expiration, what is the customer's gain or loss?

  1. $300 gain
  2. $400 loss (correct answer)
  3. $700 loss
  4. $1,000 loss
Explanation: The breakeven for a short put is the strike price minus the premium: $45 - $3 = $42. Since the stock price of $38 is below the breakeven, the position is a loss. The put is in-the-money by $45 - $38 = $7. The writer's net loss is the $7 intrinsic value minus the $3 premium received: $7 - $3 = $4 per share. The total loss is $4 x 100 = $400.

Question 18

An investor purchases 10 TUV Dec 120 calls for a premium of $6.50 each. To break even, the market price of TUV stock must be:

  1. $113.50
  2. $120.00
  3. $126.50 (correct answer)
  4. $185.00
Explanation: The breakeven point for a long call option is calculated by adding the premium to the strike price. In this case, the breakeven point is $120 (Strike Price) + $6.50 (Premium) = $126.50.

Question 19

An investor purchases 100 shares of BCD at $98 and simultaneously buys 1 BCD Jul 95 put at $3 to protect the position. What is the investor's maximum possible loss?

  1. $300
  2. $500
  3. $600 (correct answer)
  4. $9,500
Explanation: This is a protective put strategy. The maximum loss is limited by the put option. The breakeven is Stock Cost + Put Premium = $98 + $3 = $101. The maximum loss occurs if the stock price drops below the put's strike price. It is calculated as (Stock Purchase Price - Put Strike Price) + Premium Paid. Here, ($98 - $95) + $3 = $6 per share. The total maximum loss is $6 x 100 = $600.

Question 20

An investor expecting high volatility buys 1 STU Feb 90 call at $4 and 1 STU Feb 90 put at $3. This long straddle will be profitable if the stock price is either above $97 or below:

  1. $83 (correct answer)
  2. $86
  3. $87
  4. $90
Explanation: To find the breakeven points for a straddle, first calculate the total premium paid: $4 (call) + $3 (put) = $7. The upside breakeven is the strike price plus the total premium ($90 + $7 = $97). The downside breakeven is the strike price minus the total premium ($90 - $7 = $83). The position is profitable above $97 or below $83.