Bubba sells 100 shares of XYZ short at $58 and buys 1 XYZ Mar 60 Call at $3. What is the customer's maximum loss?
A)$500
B)$100
C)unlimited
D)$5,500

Question

Quizplus · Accepted Answer

$500. Bubba sold short at $58. The call with a strike price of 60, gives him the right to buy back the stock at $60. If the stock rises, the call can be used to limit the loss to 2 points. Bubba can lose $200 on the stock. Bubba also paid a $300 premium. Loss potential is $500.

Bubba Sells 100 Shares of XYZ Short at $58 and Buys