Final answer:
In a short put option, the max gain is the premium received, the max loss is the strike price minus the premium, and the breakeven is the strike price minus the premium received.
Step-by-step explanation:
The maximum gain for a put seller in a short put option position occurs when the stock price is above or equal to the strike price at expiration. This results in the put option expiring worthless, allowing the put seller to keep the entire premium received when the put was sold.
The maximum loss for the put seller is theoretically significant because if the stock price goes to zero, the put seller is obligated to purchase the stock at the strike price. Hence, this loss is equal to the strike price minus the premium received, as the seller must buy the stock at the strike price, which is now worthless. The breakeven point for the put seller is the strike price minus the premium received for selling the put.
In conclusion, when engaging in a short put strategy, the key metrics to understand are the maximum gain (premium received), maximum loss (strike price minus the premium received), and the breakeven point (strike price minus the premium).