Asked by Zachary Smith on Apr 25, 2024
Verified
You purchase one ONB March 200 put contract for a put premium of $6. What is the maximum profit that you could gain from this strategy?
A) $20,000
B) $20,600
C) $19,400
D) $19,000
Put Contract
A financial contract giving the holder the right, but not the obligation, to sell a specific amount of an underlying asset at a set price within a specific time.
Put Premium
The price that an investor pays for the right, but not the obligation, to sell a security at a specified price before a certain date.
Maximum Profit
The greatest possible gain that can be achieved from an investment, taking into account the cost basis and market conditions.
- Leverage comprehension of call and put options to identify the break-even point, peak profit, and maximal loss.
Verified Answer
BW
Betty Williams5 days ago
Final Answer :
C
Explanation :
The maximum profit from a put option is achieved if the stock price goes to $0. Since the strike price is $200 and you pay a $6 premium, the maximum profit is (200 - 6) * 100 = $19,400, because each contract represents 100 shares.
Learning Objectives
- Leverage comprehension of call and put options to identify the break-even point, peak profit, and maximal loss.