Chapter 06 · Section 6.1
Potential Losses
Your potential losses are:
c) unlimited on both the upside and the downside.
No. This is the profile of a short straddle or short strangle. Remember that the premium paid for the long option is offset by the premiums received for the short options - this results in a horizontal line on the profit/loss profile.
d) limited on both the upside and downside.
a) limited on the upside and unlimited on the downside.
b) limited on the downside and unlimited on the upside.