Question
Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. Put and call options are available at exercise
Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. Put and call options are available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89, and the puts cost $2.15. There are no dividends on the stock, and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options). Suppose the investor constructed a covered call. At expiration, the stock price is $27. What is the investor's profit? What is the breakeven stock price at expiration for the transaction? What is the maximum profit from the transaction if the position is held to expiration?
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