Series 7 practice questioneasyOptions — Put Options Max Gain/Loss
What is the maximum loss for a buyer of a put option?
- AUnlimited
- BThe strike price minus the premium
- CThe premium paid✓ Correct answer
- DThe strike price
Explanation
Why C — The premium paid
Like a call buyer, the maximum loss for a put buyer is the premium paid. If the stock price stays above the strike price, the put expires worthless and the buyer loses only the premium. The risk is always limited to the initial investment in the option.
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