Question

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 what would be the overall gain or loss if the stock ended up at
a. $41
b. $25
c. $57
d. $70
Disregard the stock being called away in parts a, c, and d. Assume you will repurchase the options.



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  • CreatedJuly 26, 2013
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