Answer: $33; $3.50
Explanation:
A Put Option enables the holder to sell an asset at the price on the Put if it is more than the market price of the asset when the put is due in future. As the writer therefore, the maximum loss you can make is if the stock falls to $0 and you have to still buy the stock at the price the Put states.
For instance, if you get intona Put contract and say that you will buy a stock at $8 and the price drops to $0, the maximum loss you will make is $8 because you cannot go lower than $0.
The maximum loss here therefore is $0, however, the holder gave a premium of $2 so you don't lose that $2.
The maximum loss therefore is,
= 35 - 2
= $33
As for a Call Option, the holder only calls the option if the price drops below the Put Price. If it never does they have no incentive to. Suppose it never drops then that means you as the writer will never make a loss because it was never called. Your profit in such a scenario would be the cost of the Call they paid you because that one is yours regardless making it the highest gain you could get.
In this scenario that figure is $3.50.
