CFA Practice Question

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.
You need to log in first to add your comment.