A customer buys 100 shares of ABC stock at 551 and buys I ABC Jan 50 Put@ $3. What is the breakeven point?
A. $47
B. $48
C. $53
D. $54
D. $54
The customer bought the stock for $51 and paid a
$3 premium for the put, for a total money outlay of$54 per share. If the stock rises to $54, the customer breaks even. If the stock continues to rise the customer gains on the stock and the put expires worthless. The put protects the customer if the stock should fall in price. If the stock price
drops be.low $50, the customer ca!l always exercise the put and sell the stock for $50, limiting the customer's loss to 4 points ($400.)
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