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Please show how profit is limited to 145,500

Please show how profit is limited to 145,500

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Answer #1

Number of option = 10 contracts *100 option =1000 options

Since the put provides positive payoff when the stock price is below strike price. The lowest that stock can go is $0.

Hence the highest payoff per option =$150

Minus the stock premium paid=$4.50

Profit per option =$150-$4.50=$145.50

For 1000 options =$145.50*1000=$145,500

Maximum loss will be when the stock price is above $150, but the option wont be exercised, hence $4.50

loss=$4.50*1000=$4,500

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