Jim Lemke purchases a put option on Roofus Corp.for $3.50.The put option has a 1 year expiration and a strike price of $35.Currently Roofus Corp.is trading at $38.What is Lemke's maximum loss on the put option?

Question

Quizplus · Accepted Answer

The most that an option buyer can lose on a position is the amount he paid for the option.Therefore Lemke can only lose $3.50 on his Roofus put option.

Jim Lemke Purchases a Put Option on Roofus Corp