Loss to put writer = x-s (+ premium) Gain to put writer = Loss to call writer = Gain to call writer = Loss to put buyer Gain to put buyer Loss to call buyer Gain to call buyer Breakeven on Covered call = S- p Breakeven on Protective Put = 2. An investor purchases a stock at $60 and at the same time, sells a 3-month call on the stock. The short call has a strike price of $65 and a premium of $3.60. The risk-free rate is 4%. The breakeven underlying stock price at expiration is closest to: A. $55.85. B. $56.40. C. $60.80. D. $61.40. (please show calculation)
B. Total cost to the investor is stock (-60) plus short call (+3.6) = 56.4 If the price go below 56.4, the investor will be at loss. In this case, short call creates a cap to maximum gain from one side, and provides some cash flow (premium) from other.
oh sorry, I have the formula for that question… Breakeven on Covered call = S- p = 60 -3.60 = 56.4
I honestly think the best way is to drill these until you get the conept. Formulas didn’t help me at all… i have to do them intuitively. Only one i memorized was the parity formula.
formula’s don’t help me much either! unless i look at the formula, and realize what is going on inside them, and then like you said i can quickly know what to calculate, those formula’s don’t do crap for me. i’m kind of worried but i don’t see how people could memorize all kinds of different formulas…anybody else?
B S - P is beven on CCalls memorized the rules and put call parity and that is getting me by 70% of all option questions,