Question

You purchase one June 70 put contract for a put premium of $4. What is the maximum profit that you could gain from this strategy?

Answer 1

$6,600

Step-by-step explanation:

The payoff arise from put option is max (K - S, 0) - P

Now it would be maximum at S = 0

And, the maximum payoff is

K - 0 - P

= K - P

= 77 - 4

= $66

We assume that for each and every contract the number of shares is 00

So, the maximum profit gained from this strategy is

= $66 × 100 shares

= $6,600

We simply multiplied $66 by the number of shares so that the maximum profit gained could come and the same is to be considered