What are naked calls, and why are they particularly risky? What is the maximum profit on...
- What are naked calls, and why are they particularly risky? What is the maximum profit on the writing of a naked call? What is the maximum loss?
- A call option with a strike price of $30 expires in six months. The current price of the stock is $40. What is the intrinsic value of the option? Should the option have a time premium? Is the option in-the-money or out-of-the-money?
I need help with this questions.
Homework Answers
1.
Naked call is writing the call without holding the underlying. Thye
are risky because at expiry the buyer might exercise the option and
hence would have to be bought from the market or cash settled.
2.
Maximum profit is the premium
3.
Maximum loss is unlimited
4.
Intrinsic Value=MAX(40-30,0)=10
5.
Time Value should be there
6.
The option is in the money
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