SIE practice questionmediumOptions — Long Call Max Gain/Loss
An investor buys 1 XYZ Oct 60 call at $4. What is the maximum potential loss?
- A$400 (the premium paid)✓ Correct answer
- B$6,000 (the strike price)
- C$5,600 (the strike price minus the premium)
- DUnlimited
Explanation
Why A — $400 (the premium paid)
The maximum loss for a long call buyer is limited to the premium paid. If XYZ stays at or below $60 (the strike), the call expires worthless and the investor loses the $4 premium x 100 shares = $400. The maximum GAIN for a long call is theoretically unlimited because the stock can rise indefinitely. The breakeven is $64 ($60 strike + $4 premium).
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