USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for a common stock.

-Refer to Exhibit 16.7. Calculate the net value of a covered call position at an expiration stock price of $20.
A) $1.85
B) $4.45
C) $18.15
D) $21.85
E) $24.35

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for a common stock.
 
-Refer to Exhibit 16.7. Calculate the net value of a covered call position at an expiration stock price of $20.
A) $1.85 
B) $4.45 
C) $18.15 
D) $21.85 
E) $24.35

Quizplus · Accepted Answer

The net value of a covered call position at expiration is calculated by adding the profit (or loss) from the stock position to the profit (or loss) from the call option position. If the stock was bought at a lower price and the call option was sold (written), the net value at a stock price of $20 would include any gains from the stock's price increase up to the strike price, plus the premium received from writing the call. Without specific numbers from Exhibit 16.7, the general approach is to calculate the stock's gain up to the strike price, add the premium received for the call option, and consider any intrinsic value the call might have at expiration. However, since the exact details from Exhibit 16.7 are not provided, the correct answer is based on typical outcomes for covered call strategies.