An investor purchases a stock for $46 and a put for $.90 with a strike price of

Question

An investor purchases a stock for $46 and a put for $.90 with a strike price of $43. The investor sells a call for $.90 with a strike price of $51. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sign.)

An investor purchases a stock for $46 and a put for $.90 with a strike price of $43. The investor sells a call for $.90 with a strike price of $51. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sign.)

Explanation / Answer

This is an example of the Collar Strategy Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received = 51 - 46 + (0.90 - 0.90) = $5 Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received = 46 - 43 - (0.90 - 0.90) = $ 3

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.