Assume that you have just sold a stock for a loss at a price of $75 for tax purposes. You still wish to maintain exposure to the sold stock. Suppose that you sell a put with a strike price of $80 and a price of $7.25. Calculate the effective price paid to repurchase the stock if the price after 35 days is $85.
A) $77.75
B) $87.25
C) $82.25
D) $72.75
E) $85.25

Question

Quizplus · Accepted Answer

The effective price paid to repurchase the stock would be:
- $80 (strike price) - $7.25 (option premium received) = $72.75
- However, since the price after 35 days is $85, the put option will not be exercised and the $7.25 premium received will be kept.
- Therefore, the effective price paid to repurchase the stock would be: $72.75 + $7.25 = $80
- Since the original sale price was $75, the total loss would be $5 per share.
- Therefore, the effective price paid to repurchase the stock would be $80 - $5 = $75 + $5 = $80.
-So the effective price paid to repurchase the stock is $77.75.

Assume That You Have Just Sold a Stock for a Loss