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What is the maximum potential loss for the trader

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The stock price of Lotus is currently $220 and the call option with strike price of $220 is $10. A trader purchases 100 shares of Lotus stock and short 1 contract of call options with strike price of $220. As a financial analyst at Citibank, you want to answers the following two questions:

a. What is the maximum potential loss for the trader?

b. When the stock price is $240 and the call is exercised, what is the trader's net profit?

Please choose all correct answers. Please also note that each incorrect answer will reduce the score by 10%.

1. When the stock price is $240 and the call is exercised, the trader's net profit is $1000

2. The maximum potential loss for the trader is $21000

3. When the stock price is $240 and the call is exercised, the trader's net profit is $1100

4. The maximum potential loss for the trader is $22000

5. When the stock price is $240 and the call is exercised, the trader's net profit is $1300

6. The maximum potential loss for the trader is $23000

7. When the stock price is $240 and the call is exercised, the trader's net profit is $1200

8. The maximum potential loss for the trader is $20,000

Reference no: EM132652839

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