Answer-first summary for fast verification
Answer: $27
A bear put spread is constructed by **buying the higher-strike put** and **selling the lower-strike put**. - Long $28 put: cost = $2 - Short $25 put: premium received = $1 - **Net initial cost** = $2 - $1 = **$1** For stock prices between the strikes ($25 < S < $28), the payoff of the spread is: - $28 - S$ Break-even occurs when payoff = initial cost: - $28 - S = 1$ - $S = **27**$ So the strategy breaks even at a future stock price of **$27**. Therefore, the correct answer is **B**.
Author: Manit Arora
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Q-184.2. Assume two OTM put options on a stock with a current price of $30: the first put option has a strike at $25 and costs $1, the second put option has a strike at $28 and costs $2. Ignoring the time value of money, if an investor enters a BEAR SPREAD trade, at what future stock price does the strategy break-even (break-even is when the strategy’s profit is zero)?
A
$26
B
$27
C
$28
D
$29
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