Response to the following problem:
Angelo Martino just purchased 5000 shares of Norman Harvey Ltd at $6.15, and he has decided to write covered calls against these shares. Accordingly, he sells five Norman Harvey calls at their current market price of $0.575; the calls have three months to expiration and carry a strike price of $6.50. The shares pay a quarterly dividend of 8 cents a share
a. Determine the total profit and holding period return Angelo will generate if the share rises to $6.50 a share by the expiration date on the calls.
b. What happens to Angelo's profit (and return) if the price of the share rises to more than $6.50 a share?
c. Does this covered call position offer any protection (or cushion) against a drop in the price of the share? Explain.