Imagine it is January, 2022, and you hold 10,000 shares of Apple Inc. (ticker symbol: AAPL) and you are considering entering into a covered call writing strategy. You gather the following information:

 

APPL Closing Price: $175.08

AAPL Call Options (3/18/22 Expiration)

 

a) You wish to sell an out-of-the-money call with a delta having an absolute value of no greater than 30%. Using only the prices presented in the table above, what is the lowest strike price you could sell without exceeding that limit?

 

b) Graph (i) the payout profile of the call you would sell derived from part a), and (ii) the combination of that sold call and your long position in AAPL. Label key values on the X and Y axes.

 

Strike Price 150 155 160 165 170 175 180 185 190 195 200 Bid 28.25 24.05 20.30 16.85 13.80 11.25 8.85 6.85 5.45 4.20 3.30 Ask 28.50 24.55 20.75 17.30 14.20 11.45 9.10 7.20 5.55 4.35 3.35 Implied Vol. (mid-market) 35.35% 34.48% 33.32% 32.46% 31.74% 31.09% 30.60% 30.43% 30.07% 30.22% 30.25%