Question

If a customer buys 500 shares of abc at 48 and writes 5 abc 50 calls at 2, what is the maximum loss?

$23000 The probable maximum lossPML” is the most loss an insurer might sustain in a certain area before going bankrupt. The PML is the total loss that an insurer would anticipate suffering under a certain policy. The amount of loss from a specific hazard or collection of perils that will equal or surpass, in a given proportion of all situations, the total worth of the property is the probable maximum loss for that property. The investor pays$48 per share for the stock and receives $2 for selling the calls. The maximum loss is$48 per share minus the option premium collected, or ($48 −$2) × 500 shares = \$23,000.