Compute the rate of return for both the seller and the buyer

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Reference no: EM13970737

1. We have 10,000 common shares of Procter and Gamble, each of which we bought for $38, and we sell covered calls on those shares. The premium is $1.5, and the strike price is $45 per share. Expound on the results, in two different cases. In the first case, the market price rises to $60, and in the second case it falls to $38. Compute the rate of return for both the seller and the buyer of the P&G call option.

2. The data are identical to the first problem. The contrast, however, is that there is no ownership of the shares of P&G. Analyze the problem as above, except for a naked call.

Reference no: EM13970737

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