Question

If a customer sells short 100 xyz at 79 and simultaneously writes 1 xyz jan 80 put at 5, the maximum gain potential is:__________

Answer 1

If a customer sells short 100 xyz at 79 and simultaneously writes 1 xyz jan 80 put at 5, the maximum gain potential is: 400.

What is maximum gain potential/capital gain?

When an investor invests in or sells put option on stocks she owns, she is selecting a good approach to hedge against loss or bring additional funds in her account. Whenever a seller invests cover call options, this is the most frequent form.

Now according to the question-

• A short stock with such a short puts is an income strategy with unlimited loss potential.
• Although the customer will profit if the price falls, the customer signed an in-the-money put that would be exercised, requiring the client to acquire stock at 80 for a $100 loss here on stock shorted at 79.
• However, the customer collected $500 in premiums, for a total gain of $400.
• The break even point for a brief stock-short put is the short sale price plus the premium.
• In this scenario, the break-even point is 84, and the maximum gain is four points, between 84 to 80.

Therefore, the maximum gain potential is 400.

To know more about the maximum gain/capital gain, here

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