Secrets To Passing Your Securities Exam - Selling Options Made Easy with Suzy Rhoades!

[@richardstuart1621]

You’re absolutely amazing! Thank you and keep up the great work

[@PassMasters]

So glad you found it helpful! Thank you for watching. 😀

[@bsomer9118]

I have a question on index options here is the question .... An investor purchases an index 352 call for a premium of 3. At expiration the index value is 344. All the following statements are true EXCEPT A) The investor paid $300 to establish the position B) The investor's call is out of the money at exercise C) The writer of the call will receive $800 at expiration D) The breakeven of the index call is 355 I know the answer is C but I don't see how? can you explan?

[@PassMasters]

I start with a T chart, the buyer is out the $300 premium when they bought the call...then look at the strike versus market, with a call you want the market ABOVE the strike, here the strike is 352 and the market is 344 so it's OUT OF THE MONEY, can't be exercised. Breakeven on a call is strike plus premium, so in this case 355....So you are looking for the false statement. I always write on scratch paper all four choices, and then literally write true/false...so A, true....B, true....C, false - C reads the "writer of call will receive $800 at expiration" this is not correct. The best case scenario when you write an option is that you get to collect the premium and do nothing, which is what happens in this case since the option was out of the money at expiration. However, how much money did the buy PAY for the option? $300! So that is how much the writer (seller) received when the option was originally sold....D, true...Hope that helps! Keep up the good work! 😀

[@MarengDeby]

C is the answer

[@PassMasters]

You got it! C is the answer because it is the one that is false.@@MarengDeby Thanks for watching.😀