Supposed Saudi Constructioneers Ltd. (Saudico) is concerned about volatile commodity prices (e.g., metals products) and they use option contracts to alter their risks. What is the worst-case scenario for a seller of put options on Hadeed with a strike price of $2.25 per ton?

1. Losses can be unlimited if prices drop sufficiently.

2. If Hadeed prices rise above $2.25 the option premium will be lost.

3. Losses can be unlimited if prices rise sufficiently.

4. If Hadeed prices drop below $2.25 the option premium will be lost.