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10 June, 09:30

An investor purchases a stock for $39 and a put for $0.55 with a strike price of $32. The investor sells a call for $0.55 with a strike price of $42. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sign.)

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  1. 10 June, 09:47
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    The maximum profit and loss for this position is $3 and - $7 respectively

    Explanation:

    The computations are shown below:

    For maximum profit:

    = Strike price at the sale - stock price + put price - call price

    = $42 - $39 + $0.55 - $0.55

    = $3

    For maximum loss:

    = Strike price at purchase - stock price + put price - call price

    = $32 - $39 + $0.55 - $0.55

    = - $7

    Simply we take the difference between the strike price, and the stock price and after that the put and call price are adjusted
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