A portfolio manager decides to write a call option on a, Ask an Expert

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A portfolio manager decides to write a call option on a stock she owns. The current price of the stock is $45, and the portfolio manager writes a call option with a strike price of $50 at an option premium of $3.50.

Which of the following statements regarding the portfolio’s manager’s combined stock/option position is correct?

A The portfolio manager is effectively selling away the stock’s upside above $50 in exchange for current income.

B The price of the stock must rise to at least $50 before the portfolio manager will lose money.

C The price of the stock would have to fall to $41.50 before the portfolio manager would benefit from the strategy.

D The strategy employed by the manager is the most effective strategy for insulating the stock position against a significant decline in price.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92428223

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