Series 7 practice questionmediumOptions — Covered Call Calculation
An investor buys 100 shares of ABC at $62 and writes 1 ABC Sep 65 call at $4. What is the breakeven point on this position?
- A$58✓ Correct answer
- B$61
- C$62
- D$66
Explanation
Why A — $58
The breakeven on a covered call is the stock purchase price minus the premium received: $62 - $4 = $58. The premium received provides a $4 cushion against a decline in the stock price. At $58, the $4 loss on the stock is offset by the $4 premium collected.
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