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11 January, 18:10

An investor purchases a stock for $40 and a put for $0.60 with a strike price of $34. The investor sells a call for $0.60 with a strike price of $44. What is the maximum profit and loss for this position?

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  1. 11 January, 18:12
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    Therefore, the maximum profit is $4 and the maximum loss is - $6

    Explanation:

    The computation is shown below:

    In the case of put option

    Profit or loss = Strike price of the good - purchase price of good

    = $34 - $40

    = - $6

    In the case of call option

    Profit or loss = Strike price of the good - purchase price of good

    = $44 - $40

    = $4

    Therefore, the maximum profit is $4 and the maximum loss is - $6
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