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NemiM [27]
3 years ago
11

You just purchased a three-month BP call option (exercise price $75) and a three-month BP put option (exercise price $75). The c

all premium is $6 and the put premium is $2. Your maximum potential loss from this position is ______________. (Assume each contract is for 100 shares of stock) $200 $600 $800 unlimited
Business
1 answer:
enyata [817]3 years ago
3 0

Answer:

Correct option is C.

<u>Maximum potential loss from this position is $800</u>

Explanation:

Premium paid for call option = $6 * 100 = $600

Premium paid for put option = $2 * 100 = $200

Total cost = $600 + $200 = $800

In case the price of underlying stock falls below $75, call option will be exercised. If the price rises above $75 cal option would be, exercised. In case price stays at $75, nothing would be done. In any case the amount lost cannot exceed the cost of $800 that has been paid for the options.

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