Question

Please show all work.

Consider a call option with one year time remaining to expiration and the table below

Time	Stock Price	Call Exercise Price	Call premium
Now	33	30	4
Later	29	30	1

   Provide the result of the covered call writing strategy in the table below in the context of marking to market only.

Time	Stock Position	Call Option Position	Net or combined position
Now	Action:	Action:	Result:
6 months later	Action:	Action:	Result:
Results in $
Results in %

Answer 1

Covered call strategy involves selling call ooption on the asset already held. Here investor intends to hold asset for long term but believes that the asset might fall for short period. Thus premium received will be income for that period.

Time	Stock Position	Call Option Position	Net or combined position
Now	Action:Buy stock @ 33	Action:Sell @ 4$	Result: -29$
6 months later	Action: Hold stock	Action: Buy @ 1$	Result: Now cost of shares is reduce to 30$
Profit in $		3$
Results in %		75%