Suppose a stock is priced at $30 and an eight-month call on the stock with an exercise price of $25 is priced at $6. Compute the taxable gain and tax due for each of the following cases, assuming that your tax bracket is 28 percent. Assume 100 shares and 100 calls.
a. You buy the call. Four months later, the stock is at $28 and the call is at $4.50. You then sell the call.
b. You buy the call. Three months later, the stock is at $31 and the call is at $6.50. You then sell the call.
c. You buy the call. At expiration, the stock is at $32. You exercise the call and sell the stock a month later for $35.
d. You buy the stock and write the call. You hold the position until expiration, whereupon the stock is at $28.
e. You write the call. Two months later, the stock is at $28 and the call is at $3.50. You buy back the call.