Determine IBM stock to be the best suitable for the covered call strategy. Justified our choice by considering the following factors: (i) the short duration of the strategy, (ii) current market conditions, (iii) relative valuation of IBM, (iv) relative risk of IBM, (v) volatility of your IBM's stock returns, (vi) bid-ask spread and liquidity of the stock and the option, etc.
Graphed the expected pay of for the covered call strategy for various choices
of X, assuming the stock price does not change, changes +/- 5% from the price on February 21.
The position will be liquidated on March 11 (i.e., we will buy back the call
and sell the stock) following its implementation. This is a suggested investment for an
endowment fund so carefully consider the levels of risk involved.