Question

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.

Answer 1

Break even of covered call option is calculated by subtraction of call option premium from the price of initiation of purchase of underlying stock.

covered call is a strategy which has been adopted by the Investor by purchasing the underlying stock and selling In the money call option because he believes that prices in the short term will be range bound.

Break even= (840-35)= 805

after the price of the tesla fall below 805, the investor will start to make losses.

and similarly after the prices of the tesla will be rising beyond 875 then Investor will start to main losses.

As break even point will be calculated after deduction of the premium from stock underlying price.