The three-month 90-strike put is priced at $2 and the three-month 100-strike put is priced at $7.What is the maximum possible net payoff on a bearish vertical spread using these options?

Question

Quizplus · Accepted Answer

The maximum payoff of a bearish vertical spread (buying the higher strike put and selling the lower strike put) is the difference in strikes minus the net premium paid. Here, the difference in strikes is $10 (100 - 90), and the net premium paid is $5 (7 - 2), so the maximum payoff is $5 (10 - 5).

The Three-Month 90-Strike Put Is Priced at $2 and the Three-Month