Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options). Use this information to answer questions 1 through 10.
-What is the maximum profit that the writer of a call can make?
A)$2,711
B)$289
C)$3,000
D)$3,289
E)none of the above

Question

Quizplus · Accepted Answer

The maximum profit that the writer of a call option can make is the premium received for selling the call option. Since the call options are priced at $2.89 each and one contract consists of 100 options, the maximum profit is $2.89 * 100 = $289.

Consider a Stock Priced at $30 with a Standard Deviation