Question
Consider a stock currently trading at $40. There is a call and a put option available at exercise price of 40 and a time to
Consider a stock currently trading at $40. There is a call and a put option available at exercise price of 40 and a time to expiration of six months. The call is priced at $3.25, and the put at $2.25. There are no dividends on the stock and the option is European. Use this information to answer the following questions.
a. Suppose the investor constructed a covered call position. At expiration the stock price is $27. What is the investor's profit (loss? What is the maximum profit from the transaction?
What is the breakeven stock price at expiration for the transaction?
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