You purchase one September 50 put contract for a put premium of $2.What is the maximum profit that you could gain from this strategy?

Question

Quizplus · Accepted Answer

The maximum profit that can be gained from this strategy is $4,800. This is because the put option gives the holder the right to sell the underlying asset at a specified price (the strike price) on or before a certain date (the expiration date). If the price of the underlying asset falls below the strike price, the holder of the put option can exercise the option and sell the asset at the strike price, thereby making a profit. The maximum profit that can be made is the difference between the strike price and the price of the underlying asset at the time of exercise. In this case, the strike price is $50 and the put premium is $2. Therefore, the maximum profit that can be made is $50 - $2 = $48.

You Purchase One September 50 Put Contract for a Put