Consider a stock priced at $30 with a standard deviation of…
Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one options contract. Ignore the time value of money! Suppose the investor constructed a covered call, i.e. long 100 stock and short 1 call. At expiration the stock price is $27. What is the investor’s profit?