Series 7 - General Securities Representative Exam
A speculative trader shorts 100 shares of JKL stock at 50 and simultaneously writes 1 JKL 50 put at 2.50. What is the trader's maximum gain?
The trader sold the stock at 50 and sold the put at 2.50. Now, there is $52.50 in the account. If the stock goes below 50, the put will be exercised and the stock will be assigned to the trader who will pay $50 for the stock and then replace the shorted (borrowed shares). The maximum gain is $2.50 per share