Reference no: EM133002724

Question - Part I - There is an option involved strategy named "Ratio call writing". It is the strategy when one owns a certain number of shares of the underlying stock and simultaneously sells calls against more shares than one owns. Therefore, there is a ratio of calls written to stock owned. The most common ratio is the 2:1. For example a 2:1 ratio can be established by buying 100 shares of ABC at $49 per share and selling 200 ABC October 50 calls at $6. What is the profit/loss of the above "ratio call writing" strategy when stock price at October expiration is $37, $45 and $63, respectively?

Part II - For the above strategy, what is the expected maximum profit and when can the maximum profit be achieved? What is the expected maximum loss and when are you likely to suffer the loss? Would the strategy break even at October expiration? At what range of stock prices, do you expect to make profit?