What strategy can the investor use to achieve goal

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An investor has a Long Position in Asset A consisting of 1,000 shares of stock purchased at $25/share. An investor is bearish and would like to earn income in addition to any dividends they currently receive. (1 option =100 shares of stock)

a. What strategy can the investor use to achieve this goal?

b. Assuming the investor writes 10 call options earning a total premium of $300, with a strike price of $35. The current market price of the stock is $30. Calculate if the strategy is in-the money or out-of the money from the standpoint of the buyer of the call. What is the profit or loss to the call writer if the option expires at this stock price? Show calculations.

c. Assume the same information in b. except that the stock price is now $40. What set of transactions would you expect to take place?

d. Calculate the Payoff and Profit from this strategy for the call writer.

e. Briefly describe the risk and loss if the investor wrote the call on Stock A but did not own it. What is this called?

Reference no: EM133058042

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