2. ABC's stock price is currently $40 per share. An at-the-money call option (X = $40) on ABC stock currently sells for $3, and an at-the-money put option sells for $2. The options expire in 6 months.

c. Now assume you executed a covered call strategy, whereby you purchased ABC stock and you wrote the call option on the stock. What are the profits and losses at expiration on the long underlying position, the short call position, and overall on the combination of the two positions, at each of the following stock prices? What simple option position does the combination resemble in terms of its payoff structure? [2 points]

S_T Profit on Long ABC Stock + Profit on Short Call = Combined Profit

20

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40

50

60

Resembles ____________________.