Question

An investor purchases a stock for $39 and a put for $0.55 with a strike price of $32. The investor sells a call for $0.55 with a strike price of $42. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sign.)

Answer 1

The maximum profit and loss for this position is $3 and -$7 respectively

Step-by-step explanation:

The computations are shown below:

For maximum profit:

= Strike price at the sale - stock price + put price - call price

= $42 - $39 + $0.55 - $0.55

= $3

For maximum loss:

= Strike price at purchase - stock price + put price - call price

= $32 - $39 + $0.55 - $0.55

= -$7

Simply we take the difference between the strike price ,and the stock price and after that the put and call price are adjusted