Series 7 practice questionhardOptions — Bull Put Spread
An investor writes 1 QRS Mar 60 put at $7 and buys 1 QRS Mar 50 put at $2 (bull put spread). What is the maximum profit, maximum loss, and breakeven?
- AMax profit $500, max loss $500, breakeven $55✓ Correct answer
- BMax profit $500, max loss $500, breakeven $57
- CMax profit $700, max loss $300, breakeven $53
- DMax profit $200, max loss $800, breakeven $52
Explanation
Why A — Max profit $500, max loss $500, breakeven $55
This is a credit spread. Net premium received: $7 - $2 = $5 (credit). Maximum profit = net credit = $5 x 100 = $500 (both options expire OTM). Maximum loss = strike difference - net credit = ($60 - $50) - $5 = $5 x 100 = $500. Breakeven = higher strike - net credit = $60 - $5 = $55.
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