The recent price per share of Dragon Vacations, Inc. is $50 per share. Calls wit

Question

The recent price per share of Dragon Vacations, Inc. is $50 per share. Calls with exactly six months left to expiration are available on Dragon with strikes of $45, $50, and $55. The prices of the calls are $8.75, $6.00, and $4.00, respectively. Assume that each call contract is for 100 shares of stock and that at initiation of the strategy the investor purchases 100 shares of Dragon at the current market price. Further assume that the investor will close out the strategy in six months when the options expire, including the sale of any stock not delivered against exercise of a call, whether the stock price goes up and goes down. If the closing price of Dragon stock in six months is exactly $60, the profit to a covered call using the $50 strike call is closest to:

A. $400 B. $600 C. 1,600

Explanation / Answer

B.$600 is the correct answer. because the strike price is $6 and he hold 100 stocks.

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