On May 9, 2019, Glenna purchases 500 shares of Ignaz Company stock for $54,400. On June 30, 2019, she writes a call option on the stock, giving the grantee the right to buy the stock for $68,000 during the following 12-month period. Glenna receives a call premium of $544 for writing the call. The call is exercised by the grantee on December 15, 2019. What is the amount and character of Glenna's gain or loss? Assume that the original option expired unexercised.

Question

Business

Kai Christensen

9 December, 13:33

On May 9, 2019, Glenna purchases 500 shares of Ignaz Company stock for $54,400. On June 30, 2019, she writes a call option on the stock, giving the grantee the right to buy the stock for $68,000 during the following 12-month period. Glenna receives a call premium of $544 for writing the call. The call is exercised by the grantee on December 15, 2019. What is the amount and character of Glenna's gain or loss? Assume that the original option expired unexercised.

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Answers (1)

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Cruz Henry · Answer 1

A short term capital gain of $13,056

Explanation:

Data provided in the question:

Purchasing price of the shares = $54,400

Calling value of the stocks = $68,000

Premium received = $544

Now,

The amount of Glenna's gain or loss

= Calling value of the stocks - Purchasing price of the shares - Premium received

= $68,000 - $54,400 - $544

= $13,056

here,

the positive answer means a gain

Since,

The gain is realized from the sale of the stocks

therefore, it is a short term capital gain

Hence,

A short term capital gain of $13,056