Series 7 Exam Question 198: Answer and Explanation

Question: 198

The maximum potential gain for a long combination is

• A. the premiums received
• B. the average of the call strike price and put strike price multiplied by 100 shares
• C. the difference between the call strike price and the put strike price multiplied by 100 shares
• D. unlimited

Correct Answer: D

Explanation:

D. A long combination is when an investor purchases and calls a purchase a put on the same security but with different strike prices and/or expiration months. So when an investor purchases a straddle, the maximum potential gain is unlimited on the call side.