Question

An investor purchases a stock for $45 and a put for $0.85 with a strike price of $41. The investor sells a call for $0.85 with a strike price of $54. What is the maximum profit and loss for this position

Answer 1

Answer and Explanation:

The computation of the maximum profit and the loss for the position is as follows:

Maximum profit is

= Call option strike price + Call price - Purchase price - Put price

= $54 + $0.85 - $45 - $0.85

= $9.00

And,

Maximum loss = - Purchase price - Put price + Put option strike price + Call price

= - $45 - $0.85 + $41 + $0.85

= - $4.00

We simply applied the above formula so that the correct value could come

And, the same is to be considered