The maximum gain for the purchaser of a call option contract is ________ while the maximum loss is ________.
A) unlimited; the premium paid.
B) the premium paid; unlimited.
C) unlimited; unlimited.
D) unlimited; the value of the underlying asset.

Question

Quizplus · Accepted Answer

The purchaser of a call option contract has the right to buy the underlying asset at a fixed price (strike price) and can profit if the asset's value rises. The maximum gain is unlimited as the asset's price can rise significantly, giving the option holder a large profit. However, the maximum loss for the option holder is limited to the premium paid for the option contract. This is because the option holder can choose not to exercise the option if the asset's price falls, thus losing only the premium paid.

The Maximum Gain for the Purchaser of a Call Option