CFA Practice Question
A share of MSFT, currently priced at $30. The premium is $4 for a 6-month call option on the MSFT with strike price $28. At what price will a trader who takes a covered call position break even?
A. 28
B. 26
C. 2
Explanation: Breakeven equals current price minus premium obtained by selling call.
User Contributed Comments 2
| User | Comment |
|---|---|
| rana1970 | it will never be called away when price is $26 that is less than strike price? |
| neilcorp | No, but the option will expire - without being exercised. Imagine it went to $20, then you would have bought it at $30, received a $4 premium for an option that is never exercised, and left with a stock worth $20, so a loss of 10-4= $6. AKA not breaking even. |