Breakeven of a covered call on 100 shares
Question
You buy shares of a stock at $230 and simultaneously write one December call against them, collecting $10.50 per share. Below what share price at expiry does the combined position start to lose money?
Short answer
$219.50. The premium cushions the shares against a fall of up to $10.50, so the breakeven is .
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Open the worked solutionLessons behind this question
- Market Model and Risk-Neutral Valuation
- Option Mechanics: Calls, Puts, Moneyness, Intrinsic Value, and Exchange vs. OTC Markets
- Option Trading Strategies: Spreads, Combinations, and Payoff Engineering
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