Question

You purchase one Microsoft June 74 put contract for a premium of $2.37. What is your maximum possible profit? Potential profit : ________

Answer 1

To calculate the maximum possible profit from a put option, we need to consider the strike price and the premium paid.

Assuming the strike price for the Microsoft June 74 put contract is $74, the maximum possible profit can be calculated as follows:

Maximum Possible Profit = Strike Price - Premium Paid

Maximum Possible Profit = $74 - $2.37

Maximum Possible Profit = $71.63

Therefore, the potential profit from purchasing one Microsoft June 74 put contract is $71.63.

Answer 2

The maximum possible profit from purchasing the put contract would be $7,163

How to find the maximum profit possible ?

For the Microsoft June 74 put contract purchased for a premium of $2.37, the maximum profit is calculated as follows:

Maximum profit = Strike price - Premium paid

Since the stock price cannot go below $0, the strike price of $74 is the most that could be received per share if the stock price fell to $0.

Maximum profit = $74 - $2.37

= $71.63 per share

Since standard option contracts typically represent 100 shares, you would multiply this maximum profit per share by 100 to get the total:

Maximum total profit = $71.63 * 100

= $7,163