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Consider a covered call, which is a combination of a long stock and a short call on the stock. Here are the call option's parameters:
Consider a covered call, which is a combination of a long stock and a short call on the stock. Here are the call option's parameters:
K, X | 6.00 | strike price |
T | 0.5 | time to expiration, in years. |
The risk-free rate equals 6%. | |
rf | 6% |
Premium of the call= 0.84
6.45 | ST Assume that the expiration date stock price is 6.45. |
stocks expiration date payoff: 0.45
short call's expiration date payoff: -0.45
stock plus short call expiration date payoff: 6
Question:
1a. What is the profit of the stock? |
1b. What is the profit of the short call? |
1c. What is the profit of the portfolio: stock plus short call? |
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