in CFA text, covered call is C+X/(1+r)^t, so does it mean we should buy call and lend money at interest rate r (sell bond at price X)
I thought covered call meant selling a call and buying stock. I don’t have my books with me, but could you let me know the volume and page number you are looking at.
Long a stock and short a call. The logic here is merely to hedge your short call position by holding on to the stock which you will give to the buyer of the call once if it is exercised.
It is buy a call and buy Treasury Bond with maturity same as expiration of call and its par value same as the Strike Price of Call. Easier way to remember it is: First, buy a call option, that is you have the option to buy the underlying later. And to be able to buy the underlying later, you are keeping cash with you. And to earn risk-free interest on that cash, you buy a T-Bond.
I think it may not be correct, sell call and not buy call, The above is not covered call, covered call is selling call. covered call=protective put. C+X/(1+r)^t is not covered call. it is equation only. P+S(protective put)=-C+S (covered call)
Yes, francisgy, I am not correct. Jackofalltrades is correct. I confused Fiduciary Call for Covered Call.
I am also