Products & RisksQuestion 40 of 125
An investor buys 100 shares of XYZ at $48 and buys 1 XYZ 45 put for 2 (a protective put). What is the maximum loss?
a.$200
b.$4,800
c.$300
d.$500
Explanation
With a protective put, the maximum loss is the stock purchase price minus the put strike, plus the premium paid, times 100: (48 - 45 + 2) x 100 = $500. Below the 45 strike, the put lets the investor sell at 45, capping the loss.
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