Series 7 practice questionmediumOptions — Bear Put Spread
An investor establishes a bear put spread by buying 1 GHI Nov 55 put at $6 and writing 1 GHI Nov 45 put at $2. What is the maximum profit?
- A$400
- B$600✓ Correct answer
- C$1,000
- D$200
Explanation
Why B — $600
Maximum profit on a bear put spread is the difference between strike prices minus the net premium paid. Strike difference: $55 - $45 = $10. Net premium: $6 - $2 = $4 (debit). Maximum profit: $10 - $4 = $6 per share, or $600. This occurs when the stock falls to or below the lower strike price ($45).
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