Hey everyone. First time posting! This forum is pretty neat. I had a question from the Derivatives section. I was working through a SCHWESER Reading Quiz online for Reading 75 (Risk Management Applications of Option Strategies), and was wondering if I could get some help on one of the problems. There is actually a graph associated with it, so I guess you can help only if you hae Schweser… The problem is below: Collete Minogue holds stock in Bracken Entertainment. Although many of her associates still believe that Bracken will be a high-performing stock, Minogue has lost faith and wants to conduct a covered call transaction. Current market conditions are as follows: § Stock price (S) at $33 per share. § Strike price of $39. § Premium of $5. § No transaction costs. In assessing whether she should conduct the covered call strategy, Minogue sketches out the following graph. Although her sketch is correct, she cannot remember all the labels. Which of the following statements about the graph and the covered call strategy is least accurate? -One of the answer is that the distance between points C and D is $5 and that’s true. I thought it would be false because the line at D is $5 (the option premium) and line at C is $11 (max profit) for a diff of $6. Did anyone else run into this problem? If I am wrong, could you please elaborate? Thanks…
hoos - are you a uva alum?
Yes I am. Class of '06. You?