Maximum gain on 200 shares with two short calls
Question
You buy shares of a stock at $230 and, against them, sell one contract ( shares) of a December $240 call for $10.50 and one contract of a December $250 call for $9.50, both with the same expiry. Assuming any call in the money at expiry is exercised, what is the strategy's maximum profit?
Short answer
$5000. The premiums bring in . At any price of $250 or more, shares are called away at $240 (gain $1000) and at $250 (gain $2000), so the most you can make is .
Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.
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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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