Question

A trader sells a put option with a strike price of $$\$ 40$$ for $$\$ 5$$. What is the trader's maximum gain and maximum loss? How does your answer change if it is a call option? 

   A trader sells a put option with a strike price of $$\$ 40$$ for $$\$ 5$$. What is the trader's maximum gain and maximum loss? How does your answer change if it is a call option?
Options, Futures, and Other Derivatives
Options, Futures, and Other Derivatives
John C. Hull 10th Edition
Chapter 1, Problem 27 ↓

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A put option gives the buyer the right, but not the obligation, to sell a stock at a specified price (strike price) before a specified date. The seller (writer) of the put option receives a premium for selling this right.  Show more…

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A trader sells a put option with a strike price of $$\$ 40$$ for $$\$ 5$$. What is the trader's maximum gain and maximum loss? How does your answer change if it is a call option?
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