Homework Soursehe maximum loss the writer of a stock put option can suffer
he maximum loss the writer of a stock put option can suffer is equal to
the striking price minus the put premium.
the striking price.
the stock price minus the put premium.
the put premium.
none of the above
he maximum loss the writer of a stock put option can suffer is equal to
the striking price minus the put premium.
the striking price.
the stock price minus the put premium.
the put premium.
none of the above
he maximum loss the writer of a stock put option can suffer is equal to
the striking price minus the put premium.
the striking price.
the stock price minus the put premium.
the put premium.
none of the above
Solution
Ans is A the striking price minus the put premium.
Explanation: Put option is a ‘right to sell’, and writer of put option is seller of option to put. Lets take an example Y sells a put option at a premium of $1 with strike price $40 to X, X will use the option when the price of stock is less than $40, and if suppose stock price goes down to $0 and Y has an obligation to purchase this stock from X with Market value 0 at $40, so his maximum loss will be $40 less $1 option premium
