You simultaneously purchase an underlying stock at 30 and wr

You simultaneously purchase an underlying stock at $30 and write an at-the-money call (exercise price is $30) on the stock. The option premium is $6. What is the minimum profit (greatest loss) for this strategy?

??

?$36

?$30

?$24

$0

Solution

The maximum loss occurs if the price drop to 0. In this case the loss on the stock = 30 - 0 = 30

net loss = 30 - premium = 30 - 6 = 24

minimum profit = -24