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Suppose you are long 1000 shares of a stock at 26, and you wish to do...

Suppose you are long 1000 shares of a stock at 26, and you wish to do a covered write using the April 32 calls, currently priced at 3.25. What is the maximum profit in dollers you could realize from this trade, assuming no change in volatility? What would be your breakeven price on this trade?

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Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text ta copy. ,_a. ars-函Merge & Center, $, % , 弼,8 C Paste B l u. Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard Font Alignment Number Cells FH71 FG FH FI FJ FK FL FM FN FO Fp FQ FR FS FT 54 COVERED WRITING 56 57 58 59 60 61 62 63 64 65 PURCHASE PRICE OF SHARES WRITE 32 CALL = 10 CONTRACTS= 1000 X 26 = 1000 X 3.25 26000 3250 NOW AS CALL IS WRITTEN, HE WILL RECEIVE PREMIUM OF 3250 THIS STRATEGY HAS LIMITED PROFIT POTENTIAL MAXIMUM PROFIT PREMIUM RECEIVED PURCHASE PRICE OF UNDERLYINGSTRIKE PRICE OF SHORT CALL MAXIMUM PROFIT-3.25-26 + 32 9.25 MAXIMUM PROFIT IS ACHIEVED WHEN PRICE OF UNDERLYINGSTRIKE PRICE OF SHORT CALL ANSWER SO MAXIMUM PROFIT = 9.25 X 1000-9250 67 68 69 70 71 72 BREAKEVEN PRICE BREAKEVEN PRICEPURCHASE PRICE OF UNDERLYING PREMIUM RECEIVED ANSWER BREAKEVEN PRICE-26-3.25 22.75 44M NPV 0CF CASH FLOW STATW FCFA confidence!NDEX CURRENCY LOAN CROSS OVER . HEDGING MONEY MARKET (GM HPR AM TAX GROWTH SUST ./ PREF AND DIV ρ 02:34 04-01-2019

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