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An investor buys a stock for $40 per share and simultaneously sells a call option on...

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Finance

An investor buys a stock for $40 per share and simultaneouslysells a call option on the stock with an exercise price of $42 fora premium of $3 per share. Ignoring the dividends and transactioncosts, what is the maximum profit the writer of this covered callcan earn if the position is held to expiration?

Answer & Explanation Solved by verified expert
3.9 Ratings (460 Votes)
Current Stock Price 40 Exercise Price 42 Premium 3 Selling an option results in a cash inflow to the investor and the inflow equals the options premium of 3If the investor has    See Answer
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An investor buys a stock for $40 per share and simultaneouslysells a call option on the stock with an exercise price of $42 fora premium of $3 per share. Ignoring the dividends and transactioncosts, what is the maximum profit the writer of this covered callcan earn if the position is held to expiration?

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