Series 7 practice questioneasyOptions — Put Options Max Gain/Loss
What is the maximum gain for a buyer of a put option?
- AUnlimited
- BThe premium paid
- CThe strike price minus the premium paid✓ Correct answer
- DThe strike price plus the premium paid
Explanation
Why C — The strike price minus the premium paid
The maximum gain for a put buyer occurs when the stock drops to zero. The profit would be the strike price minus the premium paid. Since a stock cannot fall below zero, the put buyer's gain is limited to the strike price minus the premium, unlike a call buyer whose gain is theoretically unlimited.
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