Question: What would be the maximum loss on a protective put and breakeven? For example, if you bought 500 shares of stock at $10 and it
What would be the maximum loss on a protective put and breakeven?
For example, if you bought 500 shares of stock at $10 and it is now trading at $15, so you write protective puts with a strike price of $13 and a premium of $0.75.
Would the maximum loss be:
((Current Stock price-strike price)+premium)*100* # of puts
((15-13)+0.75)*500 = 1375
OR
((Strike Price - Stock Purchase Price) + Premium Paid)*100*# of puts
((13-10)+0.75)*500 = 1875
Would the breakeven be:
(Purchase price + premium)*100*# of puts
((10)+ (0.75)) = $10.75 per share
OR
(Current stock price + premium)*100*# of puts
((15)+ (0.75)) = $15.75 per share
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