You sell a 2-period covered call on 100 shares of a stock cu…
You sell a 2-period covered call on 100 shares of a stock currently trading at $25.00 per share. The strike price of the call option is $25.00 per share. The risk free rate is 25% per period and in each of the next two periods the stock can rise by 40% or fall by 20%. If the stock goes up during both period one and period two, what is your accounting profit after 2 periods? Assume that you maintain the hedge by buying or selling the appropriate number of shares each period.