Explanation:
The correct answer is B.
Max loss = strike price of short put − strike price of long put − net premium received
= 140 − 95 − (50 − 25) = 20
Note: A bull put spread is a strategy utilized by an investor when they believe the underlying stock will exhibit a moderate increase in price. It involves purchasing an out-of-the-money (OTM) put option and selling an in-the-money (ITM) put option with a higher strike price but with the same underlying asset and expiration date. A bull put spread works when the market is exhibiting an upward trend. The maximum gain is the net premium received.
Q.4873 An investor creates a bull put spread by purchasing a put option for a premium of $25. The put option comes with a strike price of $95 and expires in July 2022. At the same time, the investor sells a put option for a premium of $50. The put option comes with a strike price of $140 and expires in July 2022. The underlying asset is the same and is currently trading at $145. Determine the maximum loss.
A
40
B
20
C
25
D
15
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