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7. Your client Johanna, asks you to explain the differences between puts and calls. When explaining options to your client, all of the following would
7. Your client Johanna, asks you to explain the differences between puts and calls. When explaining options to your client, all of the following would be true statements EXCEPT: a. If you write a call at a premium of 3, your maximum profit is $300 b. When purchasing a put, the breakeven point is the strike price less the premium paid c. If you buy a call at a premium of 3, your maximum gain is $300 d. A put is out-of-the-money if the market price is higher than the strike price Explanation: A call is out-of-the-money when the market price is less than the strike price, whereas; a put is out-of-the-money when the market price is higher than the strike price. When writing calls, the maximum profit to the writer is only the amount of the premium paid. When buying calls, the maximum profit is unlimited because the price of the stock can go up to an infinite value. In this case, if you buy a call at a premium of 3, your maximum gain is unlimited, not $300. The breakeven point when buying a put is the strike price less the premium paid
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