ICMA FMFQ Exam - Topic 3 Question 70 Discussion

Actual exam question for ICMA's FMFQ exam

Question #: 70
Topic #: 3

You have sold a put on a stock at a strike of EUR 46 for a premium of EUR 2.80. What is your maximum profit on this deal?

ACannot say - it depends on market movements

BEUR 46.00

CEUR 43.20

DEUR 2.80

Show Suggested Answer

Suggested Answer: D

by Renay at Sep 15, 2024, 11:15 AM

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Antione

5 months ago

Just the premium, EUR 2.80 is correct!

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Peggie

5 months ago

I thought it depended on the stock's performance...

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Isaiah

5 months ago

Wait, isn't it also about the strike price?

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Benedict

6 months ago

Totally agree, it's just the premium.

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Corrina

6 months ago

Maximum profit is the premium received, so EUR 2.80!

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Lindsay

6 months ago

I’m leaning towards EUR 2.80 as the answer, but I guess it could depend on how the stock performs. I just hope I remember the details correctly!

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Lindsey

6 months ago

I feel like I saw a similar question where the profit was calculated differently. Is it possible that the maximum profit could be more than just the premium?

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Glenna

7 months ago

I'm not entirely sure, but I remember something about how the maximum profit is capped at the premium when the stock price stays above the strike price.

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Xuan

7 months ago

I think the maximum profit for selling a put is just the premium received, which is EUR 2.80, right?

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Gayla

7 months ago

I'm not totally confident on this, but I believe the maximum profit is the strike price minus the premium, which is EUR 43.20.

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Bronwyn

7 months ago

Okay, let me see... The maximum profit would be the premium received, which is EUR 2.80, right?

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Lai

7 months ago

Hmm, I'm a bit unsure about this one. I need to think through the put option mechanics carefully.

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Gilma

7 months ago

This looks like a straightforward options question. I think I can solve this one.

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Carey

2 years ago

Ah, the old put-selling gambit. Just be careful, amigo, or you might end up with a stock you don't want at a price you don't like. But hey, if you're feeling lucky, go for it!

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Roxane

2 years ago

I dunno, it seems like the market could always surprise you. I'm going with A - can't say for sure until we see what the stock does.

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Santos

2 years ago

User 3: I agree, it's hard to determine the maximum profit until the stock price changes.

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Edna

2 years ago

Yeah, you're right. The market can be unpredictable.

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Veronika

2 years ago

I think it's A) Cannot say - it depends on market movements.

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Carissa

2 years ago

This one's a cinch! The maximum profit is the premium you collected, which is EUR 2.80. Simple as that.

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Shoshana

2 years ago

Option D sounds right to me. The premium you received is your maximum profit, no matter what happens to the stock price. Easy money!

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Linette

2 years ago

Exactly, selling a put option can be a good way to generate income if you don't mind potentially buying the stock at the strike price.

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Wayne

2 years ago

So, even if the stock price drops below the strike price, your profit is still capped at EUR 2.80.

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William

2 years ago

Yes, that's correct. The maximum profit is the premium you received, which is EUR 2.80.

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Yasuko

2 years ago

Option D sounds right to me. The premium you received is your maximum profit, no matter what happens to the stock price. Easy money!

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Lauran

2 years ago

I'm not sure, but I think the maximum profit depends on market movements, so it could vary.

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Antonio

2 years ago

I agree with Brinda, the maximum profit is EUR 2.80 because that's the premium received.

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Sherita

2 years ago

Hmm, I think the correct answer is C. EUR 43.20. You sold the put at 46, and the premium was 2.80, so your max profit is the difference between those two, which is 43.20.

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