Which of the following best reflects the exposure position of a writer of a put option?

Question

Quizplus · Accepted Answer

The writer of a put option faces a loss when the spot price falls below the exercise price minus the premium received, as they may have to buy the asset at the exercise price, which is higher than the current market price. The loss potential is indeed limited to the scenario where the spot price goes to zero, minus the premium they received, as this would represent the maximum difference between the exercise price and the lowest possible spot price. The maximum profit for the writer of a put option is indeed limited to the premium received, as this is the amount they earn upfront, and they make no additional profit if the option expires worthless (i.e., the spot price stays above the exercise price).

Which of the Following Best Reflects the Exposure Position of a Writer