Question
An investor owns 100,000 shares of IBM stock, $120 per share. Expected no large rise and possible drop in price. Sells 1,000 December 125 call
An investor owns 100,000 shares of IBM stock, $120 per share.
Expected no large rise and possible drop in price.
Sells 1,000 December 125 call option at $7, receiving $700,000.
Compared to the passive strategy of simply holding 100,000 shares of IBM stock, covered call writing offers some downside protection.
Questions: If IBM stock rises only slightly from $120 to $125, what is the profit associated with the passive strategy? What is the profit associated with the covered call writing strategy? What if the IBM stock drops only slightly from $120 to $113?
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Info Business Fast Startup Guide For Beginners
Authors: Mr. Oleg Kolpakov
1st Edition
1539887685, 978-1539887683
