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
b) a short Dec 104 put for $5
The profit/loss profile of a written call which is covered by a long position in the underlying is the same as the profile for a short put.
The premium can be calculated by taking the difference between the option premium received and the
IBM share price minus the exercise price of the call.