You Wrote a Covered Call with a Strike Price of $45

question 57

Multiple Choice

You wrote a covered call with a strike price of $45 and an option premium of $1.10.Assume the stock price is $44 a share currently and that it falls to $42 a share and remains at that price until the option expires.As a result,you will:

• A)lose an amount equal to the option premium.
• B)lose the option premium but get to keep the stock.
• C)keep both your stock and the option premium.
• D)keep the option premium but lose your shares of stock.
• E)lose both your stock and the option premium.

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Definitions:

Total Utility

Refers to the total satisfaction received from consuming a certain amount of goods or services.

Indifference Curves

Graphical representations of different bundles of goods between which a consumer is indifferent, helping to illustrate consumer preferences.

Northeasterly

Pertaining to or coming from the northeast direction.

Indifference Curves

Graphs showing different bundles of goods between which a consumer is indifferent, displaying preferences for certain combinations of two commodities.