Today, you purchased 300 shares of Lazy Z stock for $49.80 per share. You also bought three 1-year, $50 put options on Lazy Z stock at a cost of $.55 per share. What is the maximum total amount you can lose over the next year on these purchases?
A) −$15,105
B) −$11,050
C) −$160
D) −$105
E) $0

Question

Quizplus · Accepted Answer

The maximum loss occurs if the stock price falls below the strike price of the put options ($50). In this case, you can exercise the put options to sell the stock at $50 per share. The cost of the stock is $49.80 per share, and the cost of the put options is $.55 per share, making the total cost $50.35 per share. For 300 shares, the maximum loss is 300 shares * ($50.35 - $50) = $105.

Today, You Purchased 300 Shares of Lazy Z Stock for $49.80