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Covered Calls

How is the break-even price of a covered call calculated?

Cost of shares - premium received for selling call

Cost of shares + premium received for selling call

Strike price + premium received for selling call

Cost of shares - strike price

What happens if your covered call is in the money at expiration?

Nothing

Sell shares at the strike price and lose the options premium

Buy shares at the strike price

Sell shares at the strike price and keep the options premium

You purchase shares of XYZ at $20.00 and sell 1 $22.50 call for $0.50, what is your maximum profit potential?

$0.50

$2.50

$3.00

$2.00

We purchase shares of ABC at $65.00 and sell 1 $67.50 call option for $1.50, at expiration ABC trades at $64.00. Did we make money?

Yes

Why would you want to sell a covered call?

Generate income

Hedge against a decline

Sell shares at a better price

Lower the net cost basis of a stock

All of the above

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