There is an option involved strategy named “Ratio call writing”. It is the strategy when one owns a certain number of shares of the underlying stock and simultaneously sells calls against more shares than one owns. Therefore, there is a ratio of calls written to stock owned. The most common ratio is the 2:1. For example a 2:1 ratio can be established by buying 100 shares of ABC at $49 per share and selling 200 ABC October 50 calls at $6. What is the profit/loss of the above “ratio call writing” strategy when stock price at October expiration is $37, $45 and $63, respectively?
There is an option involved strategy named “Ratio call writing”. It is the strategy when one owns a certain number of shares of the underlying stock and simultaneously sells calls against more shares than one owns. Therefore, there is a ratio of calls written to stock owned. The most common ratio is the 2:1. For example a 2:1 ratio can be established by buying 100 shares of ABC at $49 per share and selling 200 ABC October 50 calls at $6. What is the profit/loss of the above “ratio call writing” strategy when stock price at October expiration is $37, $45 and $63, respectively?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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There is an option involved strategy named “Ratio call writing”. It is the strategy when one owns a certain number of shares of the underlying stock and simultaneously sells calls against more shares than one owns. Therefore, there is a ratio of calls written to stock owned. The most common ratio is the 2:1. For example a 2:1 ratio can be established by buying 100 shares of ABC at $49 per share and selling 200 ABC October 50 calls at $6.
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