Question

A put on XYZ stock with a strike price of $40 is priced at $2.00 per share, while a call with a strike price of $40 is priced at $3.50. What is the maximum per-share loss to the writer of the uncovered put and the maximum per-share gain to the writer of the uncovered call

Answer 1

Loss = $38

Gain = $3.5

Explanation:

The calculation of maximum per-share loss and maximum per-share gain is shown below:-

Maximum loss = Exercise price - Premium received

= $40 - $2

= $38

So, the maximum per share loss is $38

Maximum gain = Premium received

= $3.5

So, the maximum per share gain is $3.5

We simply applied the above formulas to determine each part