CFA Practice Question

An investor has just written a covered call on 100 shares of Intelligent Semiconductor, which she holds long in an brokerage account. On 1 October the investor writes 85 call on June 5th for \$5.50. At expiration, the price of Intelligent Semiconductor shares is \$132.50, and the shares are called away from the investor at the exercise price. Including the premium, how much money will this investor have received from the covered call position at expiration?
A. \$13,750
B. \$9050
C. \$5,300

User Comment
dimos Without the covered call strategy, the amount received would have been \$13250. So, compared to the covered call, the gain of the investor is \$13250 - \$9050 = \$4200
mtcfa At expiration how does a covered call writer receive \$9,050? She got \$550 for writing the premium at the outset, and had to pay \$8,500 for her stock. AT expiration she loses \$4,750 and gains the same amount on the stock. She receives no money at expiration unless she sells her own position.
Carol1 He was supposed to receive 13250 if he did not write the call, but receive 9050 with the covered call thus he lost 4200.
steved333 He lost 4200, but who cares? The question just wants to know how much cash was received. 550 for the contract and 8500 for the stock.
avgas Since he made a loss with the covered call, why was it "in-the-money"?
charliedba The loss is due to the premium, and the option being in the money does not consider the premium.
Yohan3109 are we suppose to know that the 100 stock was at 85\$ they juste say its pay for 85 call........
johnmullrooney ya'll gotta read the question

100*132.5-(132.5-85)*100+5.50*100=9050