If you invest $200 and make $50, your return on capital (ROC) is?
1. 25%
2. 50%
3. 100%
ROC = Return / Investment
ROC = $50/$200 = 25%
If you buy a 50 call for $1.50, where does stock need to go for you to breakeven?
1. $50
2. $51.50
3. $48.50
Call breakeven = Strike price + Premium
Call breakeven = 50 + 1.50 = $51.50
If you sell a 35 strike price put for $6 when the stock is trading $38 and the stock trades down $4 by expiration how much will you make/lose?
1. Loss $4
2. Make $6
3. Make $5
If you sell a 35 strike put for $6, that $6 is yours to keep. However, if the stock finishes at $34 on expiration, then you will be forced to buy the stock for $35 when it is only worth $34, costing you $1.
So your total profit will be the $6 you made off the initial sale minus the $1 loss in the put exercise. For a total profit of $5.
