A writer sells a covered call at $3 per share with a strike price of $65. If the stock price rises to $71 at expiration, what is the profit or loss to the writer?
A) $6
B) $2
C) -$2
D) -$6

Question

A writer sells a covered call at $3 per share with a strike price of $65.  If the stock price rises to $71 at expiration, what is the profit or loss to the writer?
A) $6
B) $2
C) -$2
D) -$6

Quizplus · Accepted Answer

The writer's profit is the difference between the strike price and the stock price at expiration, minus the premium received for selling the call. In this case, the writer's profit is $71 - $65 - $3 = $3.

A Writer Sells a Covered Call at $3 Per Share