An investor purchases a stock for $56 and a put option for $.80 with a strike pr
ID: 2718980 • Letter: A
Question
An investor purchases a stock for $56 and a put option for $.80 with a strike price of $50. The investor also sells a call option for $.80 with a strike price of $66. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sign. Round your answers to 2 decimal places.)
An investor purchases a stock for $56 and a put option for $.80 with a strike price of $50. The investor also sells a call option for $.80 with a strike price of $66. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sign. Round your answers to 2 decimal places.)
Maximum profit $ Maximum loss $The answers are not 10.80 and -6.80
Explanation / Answer
The money spent by investor so far = 56 + 0.8 - 0.8 = $56
Maximum profit is when stock price increases to $66, i.e. max profit = 66 - 56 = $10.00
Maximum loss is when stock price decreases to below $50, i.e. max loss = 50 - 56 = -$6.00
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