For the writer of a put option,if the underlying share price:
A) moves above the strike price the potential profits are unlimited.
B) drops below the strike price the potential profits are unlimited.
C) moves above the strike price, the potential profits are limited to the premium.
D) moves above the strike price, the premium is reduced by the difference.

Question

Quizplus · Accepted Answer

For the writer of a put option, if the underlying share price moves above the strike price, the option is likely to expire worthless, and the writer gains the premium as potential profit. Therefore, the potential profits are limited to the premium received. Option A and B describe potential losses for the writer, not potential profits. Option D is incorrect because the premium received by the writer remains the same regardless of how much the underlying share price moves above the strike price.

For the Writer of a Put Option,if the Underlying Share