Question

You purchase one microsoft july $72 put contract for a premium of $1. 32. what is your maximum possible profit?

Answer 1

The maximum possible profit = $7068

For given question,

One Microsoft July $72 put contract for a premium of $1.32

The payoff arise from put option is max (K - S, 0) - P

Now it would be maximum at S = 0

And, the maximum payoff is

K - 0 - P

= K - P

= 72 - 1.32

= $70.68

We assume that for each and every contract the number of shares is 100

So, the maximum profit gained from this strategy is

= $70.68 × 100 shares

= $7068

The maximum profit that will be gained from this strategy is $7068

Therefore, the maximum possible profit = $7068

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