An investor owns a share of 3M (originally purchased at $55) and writes a call option on the same stock and sells it for $3.00 with an exercise price of $55.
a. In what type of strategy has the investor engaged?
b. Construct a table showing the profit (loss) to the investor assuming the following stock prices when the call option expires: $30, 35, 40, 45, 50, 55, 60, 65, 70. (Note you must consider both the profit (loss) on the 3M stock and the option.)
c. Now assume instead of writing a call option, the investor bought a put option at the same price. What type of strategy is this?
d. Given (c) above, construct a table showing the investors profit (loss) assuming the following stock prices when the put option expires: $30, 35, 40, 45, 50, 55, 60, 65, 70. (Note you must consider both the profit (loss) on the 3M stock and the option.)