Wednesday, September 22, 2010

Another options question

Juan buys 100 ABC @80 then sells 1 ABC Nov 80 call @2 and 1 ABC Nov 80 put @1.50. His maximum gain is, therefore

A. $8,000
B. $350
C. zero
D. $200

EXPLANATION: can't imagine why Juan--or anyone--would establish this weird position. But, if the stock goes up at all, it gets called away at $80. If so, he would only make the premiums of $350.



ANSWER: b