Chapter 02 · Section 2.1

Combination of the two positions

Nick writes a December 104 call on IBM for which he receives a premium of $4.
In order to cover the position he buys 100 IBM shares for $105 each.
The combination of the two positions is the equivalent of:

• a) a short Dec 104 put for $3
  Yes. The profit/loss profile of a written call covered by a long position in the underlying is the same as a short put. The premium is equal to the difference between the premium of the call and the price of the IBM shares minus the exercise price. Continue
  b) a short Dec 104 put for $5

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