Question

3. Long margin portfolio, IVV (look up IVV). Write a covered call slightly out of the money (use optioneducation.org

Answer #1

In the covered call strategy, we buy 100 shares of the underlying stock and write a call option on the same underlying.

IVV is currently trading at $274.41 per share. Slightly out of the money strike is $275.

A call option on IVV 275 strike is trading at $1.15 per share with February 8, 2019 expiry.

Each call option is for 100 shares of the underlying.

So, to write a covered call we first buy 100 shares of IVV by paying 274.41 * 100 = $27,441

Then, we sell 275 strike call option on IV expiring on February 8, 201,9 for $1.15 * 100 = $115.

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