Question

Covered call: A \covered call" is a position whereby an investor sells a call to their...

Covered call: A \covered call" is a position whereby an investor sells a call to their broker, but also \covers" that option by placing the share with the broker. If the call option does not pay o , the broker returns the share to the investor. The broker pay for the cost of their option at maturity. Draw the payo diagram for the net covered call position (that is, the value of one stock - a call option + cash payment as a function of the stock price). How could the pay-o be more simply created without the use of a call?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Covered call: A \covered call" is a position whereby an investor sells a call to their...
Covered call: A \covered call" is a position whereby an investor sells a call to their broker, but also \covers" that option by placing the share with the broker. If the call option does not pay off, the broker returns the share to the investor. The broker pay for the cost of their option at maturity. Draw the payoff diagram for the net covered call position (that is, the value of one stock - a call option + cash payment...
An investor creates a covered call position by purchasing 100 shares of the Tesla stock at...
An investor creates a covered call position by purchasing 100 shares of the Tesla stock at a price of $840 per share and selling 100 call options on the Tesla stock with a strike price $840 per share. The premium of the option is $35 per share. At which stock price at the maturity of the option will the investor break even? Please provide your answer in unit of dollars (without the dollar sign), rounded to the nearest cent.
An investor sells a European call on a share for $4. The stock price is $47...
An investor sells a European call on a share for $4. The stock price is $47 and the strike price is $50. Under what circumstances does the investor make a profit? Under what circumstances will the option be exercised? Explain how investors profit, according to the variation of the stock price at the maturity of the option. (You can explain by writing a simple formula of the profit, where X is the stock price at maturity.
Investor A sells a three-month European call option on 100 shares of a stock with a...
Investor A sells a three-month European call option on 100 shares of a stock with a strike price of $40 per share and collects a total of pays a total of $500 premium. Investor B longs a 3-month forward contract on100 shares of the same stock at a forward price of $40 per share. At which stock price in three months will these two investors have the same profit or loss? (please enter only a number without the $ sign)
22. Which of the following strategies has essentially the same profit diagram as a covered call?...
22. Which of the following strategies has essentially the same profit diagram as a covered call? a.         a long put b.         a short put c.         a long call d.         a short stock e.         none of the above 23. Which of the following strategies has the greatest potential loss? a.         an uncovered call b.         a long put c.         a covered call d.         a long stock e.         it is impossible to say which has the greatest potential loss 24. if the AT&T...
A trader sells a European call option on a share for 4 SEK. The stock price...
A trader sells a European call option on a share for 4 SEK. The stock price is 47 SEK and the strike price is 50 SEK. Under what circumstances does the trader make a profit? Under what circumstances will the option be exercised? Draw a diagram showing the variation of the trader’s profit with the stock price at the maturity of the option. Please carefully label: Breakeven point, profit, loss and don't forget the diagram.. thanks in advance!
The prices of European call and put options on a non-dividend-paying stock with 12 months to...
The prices of European call and put options on a non-dividend-paying stock with 12 months to maturity, a strike price of $120, and an expiration date in 12 months are $25 and $5, respectively. The current stock price is $135. What is the implied risk-free rate? Draw a diagram showing the variation of an investor’s profit and loss with the terminal stock price for a portfolio consisting of One share and a short position in one call option Two shares...
The premium paid on an option contract (either a put or a call) represents the compensation...
The premium paid on an option contract (either a put or a call) represents the compensation the buyer of the option receives from the seller (writer) of the option for the ability to use the option if it becomes profitable. If the buyer of the option does not use the option before expiration, this premium must be returned back to the seller (writer) at the time the option expires. True False 2 points    QUESTION 3 On the day of...
Why do you suppose the marketing of the tax shelters at KPMG grew so fast? a.Transformational...
Why do you suppose the marketing of the tax shelters at KPMG grew so fast? a.Transformational leadership b. Moral manager c. Social learning theory d. Moral intensity [The following information applies to the question.] In Chapter 4 we discussed the artificial tax shelter arrangements developed by KPMG LLP for wealthy clients that led to the settlement of a legal action with the Department of Treasury and the Internal Revenue Service. On August 29, 2005, KPMG admitted to criminal wrongdoing and...
Case Study: Monica’s Handbags Monica, after completing an internship with a national apparel company, decided that...
Case Study: Monica’s Handbags Monica, after completing an internship with a national apparel company, decided that she wanted to exercise her creative design talents and her strong entrepreneurial spirit by starting her own fashion business. She conducted fundamental market research and determined that there is an unfulfilled market need for the moderate fashion handbags that she had designed at the $100 retail price point. She also learned that the independent women’s apparel stores she was targeting require a 50% retail...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT