You just sold ten Jan 2015 call option contracts selling at $1.25 on Intel Corp. stock (INTC). The options have a strike price of $35.00 and the stock is selling at $34.75 per share. You are implementing a covered call strategy and must simultaneously buy INTC common stock.
How much of the $1.25 option price is exercise value and how much is time value premium?
Exercise Value ______
Time Value Premium ______
How many shares of INTC do you need to purchase to complete your covered call transaction, and how much net cash did you pay for your investment (ignore margin issues).
of INTC shares of stock that would be purchased _______
Total net $ invested in INTC stock and ten option contracts _______
Assume that the option has just expired in January and INTC stock closed at $34. What action will the option buyer take: purchase shares from you or walk away? How much have you earned on your investment (total $)?
Option buyer action (circle one): Purchase your shares Walk Away
Total $ earned _______
Assume that the option has just expired in January and INTC stock closed at $38. What action will the option buyer take: purchase shares from you or walk away? How much have you earned on your investment (total $)?
Option buyer action (circle one): Purchase your shares Walk Away
Total $ earned _______