Series 7 practice questionhardOptions — Bear Put Spread Calculation
An investor buys 1 GHI Dec 60 put at $7 and writes 1 GHI Dec 50 put at $3. At expiration, GHI is at $48. What is the profit?
- A$600✓ Correct answer
- B$400
- C$1,000
- D$200
Explanation
Why A — $600
Net premium paid = $7 - $3 = $4 (debit). At $48, the long 60 put is worth $12 ($60 - $48), and the short 50 put costs $2 ($50 - $48). Net intrinsic value = $12 - $2 = $10. But max profit is capped at strike difference - debit = $10 - $4 = $6 per share, or $600.
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