Assume you purchase 100 shares of stock at $44 per share and wish to hedge your position by writing a 100 share call option on your holdings The option has a 40 strike price and a premium of 8 50 If the stock is selling at 38 at the time of expiration, what will be the overall dollar gain or loss o...

Assume you purchase 100 shares of stock at $44 per share and wish to hedge your position

Question:

Assume you purchase 100 shares of stock at $44 per share and wish to hedge your position by writing a 100-share call option on your holdings. The option has a 40 and a premium of 8.50. If the stock is selling at 38 at the time of expiration, what will be the overall dollar gain or loss on this covered option play? (Consider the change in stock value as well as the gain or loss on the option.) Note that the stock does not pay a cash what would be the overall gain or loss if the stock ended up at
a. $41
b. $25
c. $57
d. $70
Disregard the stock being called away in parts a, c, and d. Assume you will repurchase the options.

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...