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Ebony writes a put option on Walmart stock. At the time she writes the option, Walmart...

Ebony writes a put option on Walmart stock. At the time she writes the option, Walmart stock is trading for $144. The option premium is $3 for a put option with a strike price of $140 and expiration in one month. What is the maximum dollar profit Ebony could potentially earn?

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Answer #1

Writing a put option means to sell someone the right to sell a specific stock at a specific price before or at the specific date. To fir selling a right the person will on on the premium which the buyer will pay and therefore this premium will be the maximum profit that the seller can earn. River in selling a put option there is no limit of loss therefore the loss for the seller will be the maximum to a no limit.

So in this case as Ebony writes a put option with option premium of $3 therefore the maximum dollar profit even he could potentially on his $3.

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