What is the option strategy that donny has decided to employ

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Reference no: EM131990622

Donny just purchased 900 shares of Davita stock at $75.53, and he has decided to write calls against these stocks. Accordingly, he sells nine Davita call option contracts for $3.10 each. The expiration date on the calls is 6 months and they carry a strike price of $80.

(a) What is the option strategy that Donny has decided to employ?

(b) What happens to Donny’s total profit if the price of the stock falls to $70 a share? What happens to Donny’s total profit if the price of the stock rises to $90 a share? What is the maximum profit that Angela can achieve with this strategy? [Hint: Since we are interested in total profit you must remember that each option contract is for 100 shares of stock.

Reference no: EM131990622

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