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3) Covered Call: In a covered call, an investor who already owns a stock, adds a short position in a call on that stock to
3) Covered Call: In a covered call, an investor who already owns a stock, adds a short position in a call on that stock to his position. Suppose you are given the following inputs: S. Call Premium Call Strike $52.00 $2.60 $54.00 Graph the net profit (not the payoff) for the stock, the short call, and the entire covered call position. Vary St from $48 to $58 in increments of $1. Note: The graphs come out a lot better if you use X-Y Scatterplots and uncheck Smoothed Line" Look first at the net profit from the stock alone. What happens to the investor's net profit after he shorts the call? What does he gain? What does he give up? Why might he follow this strategy
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