If the stock price of Microsoft is $63 and the call price is $4 per share with a strike price of $65, what is the profit or loss per share to the writer if she sells a covered call and the price of Microsoft rises to $71 at expiration?

Question

Quizplus · Accepted Answer

The writer's profit is the difference between the stock's selling price and the purchase price, plus the premium received. If the stock rises to $71, the call will be exercised at $65. The writer sells at $65, having bought at $63, for a $2 gain per share. Adding the $4 premium from the call, the total profit is $6 per share.

If the Stock Price of Microsoft Is $63 and the Call