SIE (Securities Industry Essentials) Practice Exam

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An investor is long 1 January 15 call at 7. What is the breakeven point?

The correct answer is: 22

The breakeven point is the point at which the investor neither makes a profit nor takes a loss. In this scenario, the investor has purchased a call option for January 15 at a strike price of 7. This means that for the investor to make a profit, the underlying stock needs to increase in price above the strike price of 7. Since the investor is long 1 call, the breakeven point would be the strike price of 7 plus the premium paid for the option (in this case, the premium is not specified). Therefore, the breakeven point for the investor is 7 + premium. If the premium was, for example, 15, then the breakeven point would be 22. Options A, B, and D are incorrect because they do not take into account the premium paid for the option, which is crucial in determining the breakeven point.