The difference between two American put options with different strike prices is less than or equal to the dollar difference between the strike prices,the higher strike price minus the lower strike price.

Question

Quizplus · Accepted Answer

This statement is known as the "vertical spread rule" and is true for all options, not just American put options. It is used to determine the maximum possible value of a vertical spread strategy, where an investor simultaneously buys and sells two options with different strike prices. Therefore, the difference between two American put options with different strike prices will always be less than or equal to the dollar difference between the strike prices.

The Difference Between Two American Put Options with Different Strike