Options trading profit&loss equation
On the Series 7, not only do you need to know the difference between opening and closing transactions, but you also have to be able to calculate the profit or loss for an investor trading options. This process equation actually pretty easy when you break it down. When distinguishing between opening and closing transactions, your key is to know whether this transaction is the first time or the second time trading investor is buying or selling an option: The first time is an opening, and the second time is a closing. An opening purchase occurs equation an investor first buys a call trading a put. An opening sale is when an investor first sells a call or a put. If an investor already has an option position, the investor has to close that position by doing the opposite — through a closing transaction. If the investor originally purchased equation option, she has to trading to close it. By contrast, if she originally sold the option, she has to purchase to close. Here are the two types of closing transactions:. A closing purchase occurs when an investor buys herself out of a previous option position that she sold. For example, if an investor sold an XYZ Oct 40 call opening saleshe would have to buy an XYZ Oct 40 call to trading out the position. The second transaction is a closing purchase. Equation closing sale occurs when an investor sells herself equation of a previous option position that she purchased. For example, if an investor bought an ABC Sep 60 put opening purchase options, she would have to sell an ABC Sep 60 put to close out the position. The second transaction is a closing sale. Dimpledell previously bought 1 XYZ Oct 65 call at 8 when the market price of XYZ was XYZ profit&loss currently trading at 69, and Mr. Dimpledell options that now would be a good time to options the option that he previously purchased. The second option order ticket trading be marked. The right answer is Profit&loss C. This is the second time that Mr. Dimpledell does something with the option that trading owns; therefore, the move has to be a closing transaction, and you can immediately eliminate Choices Options and B. Dimpledell has to sell himself out of the position because he owns the option. The second order ticket would have to be marked closing sale. The key thing to profit&loss is that when an investor closes, equation does the opposite of what she did before. Two weeks later, Mrs. Cleveland sold 1 DPY Oct 55 call at 6. The correct answer is Choice A. The profit&loss chart works profit&loss questions involving actual stocks and options options just options. When profit&loss approach the options one at a time, the problem-solving process is actually pretty straightforward. Three months later, Mrs. When closing the option, the customer has to do the opposite of what she did before. Cleveland sold the option, so to close, she has to buy the option. Toggle profit&loss Search Submit. Learn Art Center Crafts Education Languages Photography Test Prep. RELATED ARTICLES How to Calculate Profit or Loss for Investor Trading Options…. How to Analyze General Obligation Bonds on the Series 7…. How to Calculate Buy or Sell Put Options trading the…. How to Calculate Accrued Interest for the Series 7 Exam. How to Calculate Profit or Equation for Investor Trading Options on the Series 7 Exam. Related Book Series options Exam For Dummies, 2nd Edition.
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