What is the profit of a covered call position at expiration if the spot price at expiration is $32.00? The position was initiated at a spot price of $30.50. The call option sold had a premium of $1.30 and an exercise price of $32.50.

A. $0.80
B. $1.80
C. $2.80

Correct Answer: C

The covered call position is a combination of two positions - long underlying and short call option. We can calculate the separate profit for each position and then add those up to get the profit of the covered call position. Profit in the long underlying position = 32.00 - 30.50 = $1.50. The profit in the short call position = $1.30 (because the option expired worthless at the expiry). Therefore, total profit = 1.50 + 1.30 = $2.80