An investor writes a July 20 call on a stock trading at 23 for premium of $4. The breakeven price on the trade and the maximum gain on the trade are, respectively: Breakeven Price Maximum Gain A) $24 $4 B) $24 $3 C) $27 unlimited D) $27 $4 The correct answer was A. The breakeven price is the premium received on the call plus the strike price. For a writer of an option, the maximum gain is the premium received. My question is why anwer is not D, stock trading is same as strike price plus $4 premium? Thanks in advance.
I guess the question didn’t state that this guy is writing a covered call… he is just writing a call. At $24, the writer will lose $4 when he buys a stock in the market for $24 and sells it to the option holder for $20.
strike price is 20… 20+4=24 ? not sure what your question is…
Question didn’t specifically mentions that the excercise price is 20 (I thought it’s date!). Alas, assuming X=20, Breakeven price = X+ option premium (4) = 24.
“July 20 Call” means it’s X price is 20, expires in July, and it is a call option. I think thats the terminology they use