An investor buys a 84 strike put option contract with a premium of 4.30 and writes...

Question

Question

An investor buys a 84 strike put option contract with a premium of 4.30 and writes (sells) an 80 strike put option contract for 2.20.

What is the maximum profit per share? Maximum loss per share?

Answer 1

Answer #1

Put option is the right to sell a specified security at a specified price on a future date

Maximum Profit per share is when market price is $80

$84 put will be exercised and $80 put will be allowed to lapse

Maximum profit per share = $(84-80-4.30) + 2.20

= $1.9

Maximum loss per share is when market price is above $84

Maximum loss per share = -4.30 + 2.20

= -$2.1

Answer 2

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