SIE practice questionmediumOptions — Long Put Max Gain/Loss
An investor buys 1 XYZ Nov 45 put at $3. What is the maximum potential gain?
- A$4,200✓ Correct answer
- B$300
- C$4,500
- DUnlimited
Explanation
Why A — $4,200
Maximum gain on a long put = strike price - premium paid (stock can fall to zero at most). Max gain = ($45 - $3) x 100 = $4,200. This would occur if XYZ stock dropped to $0. Maximum loss is the $300 premium paid ($3 x 100). Breakeven = strike price - premium = $45 - $3 = $42. Unlike long calls, long put gains are limited because stock can't fall below $0.
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