Angelo Martino just purchased 500 shares of AT&E at $61.50,

Angelo Martino just purchased 500 shares of AT&E at $61.50, and he has decided to write covered calls against these stocks. Accordingly, he sells five AT&E calls at their current market price of $5.75. The calls have 3 months to expiration and carry a strike price of $65. The stock pays a quarterly dividend of $0.80 a share (the next dividend to be paid in about a month).
a. Determine the total profit and holding period return Angelo will generate if the stock rises to $65 a share by the expiration date on the calls.
b. What happens to Angelo’s profit (and return) if the price of the stock rises to more than $65 a share?
c. Does this covered call position offer any protection (or cushion) against a drop in the price of the stock? Explain.
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...


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