Question $3$

$[25$ Marks$]$

You are considering implementing a covered call strategy on a stock that you own. You decide to write

$($sell$)$ a call option with a strike price higher than the current market price of the stock.

a$.$ Explain the potential outcomes at expiration for this strategy, depending on whether the stock price

ends up above, below, or exactly at the strike price.

b$.$ Discuss how this strategy changes your risk and return profile compared to simply holding the stock

without selling the call option. What is the trade$-$off of using this strategy?

c$.$ If the market is expected to be highly volatile, would a covered call strategy be appropriate? Justify

your answer.