Chapter 05 · Section 5.1

The highest potential loss

You can influence the maximum loss of your combined portfolio by selecting the appropriate put option. Which of the following options would imply the highest potential loss for the combined portfolio?

a) the puts 430
b) the puts 450
• c) the puts 470
  No. The highest strike price corresponds to the lowest potential loss. They may be the most expensive options but they are in-the-money and therefore have a small time value. Their contribution is very effective below 470.

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