Which one of the following is true for an investor who purchased a share of stock for $45 and purchased a $45 put option on the stock?
A) The investor profits when the stock decreases in value.
B) The maximum loss is the price of the option premium.
C) The investor is protected against upside potential.
D)Increases in the value of the stock will go to the seller of the put.

Question

Quizplus · Accepted Answer

The maximum loss for an investor who has purchased a stock and a put option on that stock (with the strike price equal to the purchase price of the stock) is limited to the cost of the put option premium. This is because the put option gives the investor the right to sell the stock at the purchase price, thus protecting against losses beyond the premium paid for the option.

Which One of the Following Is True for an Investor