Fatima – The Growth Investor at Bourse Bay

Fatima is executing a high-conviction bearish strategy on a pharmaceutical company (Symbol: PHARMA) that she anticipates will have negative clinical trial results. She is purchasing put options to maximize her potential gains if the stock price falls dramatically.

Fatima purchases 2 European put option contracts on PHARMA.

The contract details are:

• Strike Price: $110

• Premium Paid: $1.2

• Contract Size Assumption: Each option contract represents 100 shares of the underlying stock.

Question:

Based on this trade, what is the maximum possible profit Fatima can earn from this position?

(Assume the stock price can fall to zero and ignore transaction costs. Express your answer in dollars.)