The maximum amount that an option buyer can lose is the option price, while the maximum profit that the option writer can realize is the option price; the option buyer has substantial upside return potential, while the option writer has substantial downside risk.

Question

Quizplus · Accepted Answer

This statement is true. The option buyer's maximum loss is limited to the price they paid for the option, while the potential profit is theoretically unlimited. On the other hand, the option writer's maximum profit is limited to the price they received for writing the option, while the potential loss is unlimited. This is because the option writer is obligated to buy or sell the asset at the specified price if the option buyer decides to exercise their option.

The Maximum Amount That an Option Buyer Can Lose Is