A writer (seller) of a call option may or may not actually own the underlying asset. If
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A writer (seller) of a call option may or may not actually own the underlying asset. If he or she owns the asset, and therefore will have the asset available to deliver should the option be exercised, he or she is said to be writing a covered call. Otherwise, he or she is writing a naked call and will have to buy the underlying asset on the open market should the option be exercised. Draw the payoff diagram of a covered call (including the value of the owned underlying asset) and compare it with the payoff of other options.
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A covered call has the same payoff shape as ...View the full answer
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Related Book For
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
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