SIE practice questionhardOptions
An investor owns 100 shares of DEF, currently trading at $60. They write 1 DEF 65 call at $2 and buy 1 DEF 55 put at $1. What is the maximum loss on this position?
- A$500
- B$400✓ Correct answer
- C$600
- DUnlimited
Explanation
Why B — $400
Max loss is strike of put ($55) minus net premium received ($2-$1=$1), so $54 per share x 100 = $5,400 cost basis. If stock drops to $0, loss = $5,400 - $100 (from put premium) + $200 (from call premium) = $400 net loss.
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