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2 Oct 2018

Covered call options

10. Assume you purchase 100 shares of stock at $44 per share and wish to hedge your position by writing a 100-share call option on your holdings. The option has a 40 strike price and a premium of 8.50. If the stock is selling at 38 at the time of expiration, what will be the overall dollar gain or loss on this covered option play? (Consider the change in stock value as well as the gain or loss on the option.) Note that the stock does not pay a cash dividend.

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Jean Keeling
Jean KeelingLv2
4 Oct 2018

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Related questions


Given the following information:

Price of the stock =

$101

Strike price of a six-month call

$100

Market price of the call

$5

Strike price of a six-month put

$100

Market price of the put

$4


Answer the following questions. Each question is worth 8.5 points

Which option is “in the money”?

What is the time premium paid for the put?

If an investor establishes a naked call position, what amount is received

What is the most the buyer of the call can lose?

What is the maximum amount a short seller (of the stock) can lose

If At the expiration of the option the stock price is $93, what is the profit (loss) from buying the call.

If At the expiration of the option the stock price is $93, what is the profit (loss) from writing a covered call strategy?

If At the expiration of the option the stock price is $93, what is the profit (loss) from selling the put.

You wrote eight call option contracts with a strike price of $37.50 at a call price of $1.10 per share. What is your net gain or loss on this investment if the price of the underlying stock is $40.30 per share on the option expiration date?

a) 2,240

b) 1,360

c) -2,240

d) -1,360

e) -1,760

Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $46.

Call put

option expiration strike price volume Last Volume Last

Macrosoft Feb 47 104 2.13 59 3.13

Mar 47 80 2.37 41 3.54

May 47 41 2.65 30 3.96

Aug 47 22 2.86 22 4.00

a. Suppose you buy 29 contracts of the February 47 call option. How much will you pay, ignoring commissions?

Suppose you buy 29 contracts of the February 47 call option. Macrosoft stock is selling for $49 per share on the expiration date.

b-1 How much is your options investment worth? Payoff $

b-2 What if the terminal stock price is $48? Payoff $

Suppose you buy 29 contracts of the August 47 put option.

c-1 What is your maximum gain? Maximum gain $

c-2 On the expiration date, Macrosoft is selling for $42 per share. How much is your options investment worth? Position value $

c-3 On the expiration date, Macrosoft is selling for $42 per share. What is your net gain? Net gain $

Suppose you sell 29 of the August 47 put contracts.

d-1 What is your net gain or loss if Macrosoft is selling for $42 at expiration? (Enter your answer as a positive value.) $

d-2 What is your net gain or loss if Macrosoft is selling For $50 at expiration? (Enter your answer as a positive value.) $

d-3 What is the break-even stock price? (Round your answer to 2 decimal places, (e.g., 32.16).) Break-even $

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