Time increment

Stock Price increment

K-Strike increment

$0
$2

Days to Expiry:
Current Stock Price:
Strike Price:

V=

25.00%

Rf =

4.00%

120
$40.00
$25.00

120

120

120

120

120

120

120

120

$40

$40

$40

$40

$40

$40

$40

$40

$27

$29

$31

$33

$35

$37

$39

$41

Black-Scholes BS
"Winning" Stock Price

$15.33
$40.33

$13.36
$40.36

$11.39
$40.39

$9.46
$40.46

$7.61
$40.61

$5.88
$40.88

$4.35
$41.35

$3.08
$42.08

$2.07
$43.07

Counter =

3%

3%

3%

4%

5%

7%

11%

17%

25%

Black-Scholes BS

Strike = $25Strike
to $49
= $25 to $49
Stock = $40
Days = 120

"Winning" Stock Price

Stock = $40
Days = 120

$50.00
$40.00
$30.00
$20.00
$10.00
Counter

$0.00
1

Risk-free Rate

T=
S=
K=

Required Annual Return to WIN

$60.00

Volatility

10

11

12

13

Your stock is selling for $40.00

You sell a Covered Call Option.
Pick the Strike Price
and Days to Expiry
so that a buyer is unlikely to WIN !
(I.e. Stock Price reaches BS + K)
With the parameters above:
Days to Expiry: 120 to 120,
Current Stock Price: $40 to $40,
Strike Price: $25 to $49.
'Winning' Stock Price: $40 to $49.
most unlikely Gain = 89%
Counter = 13
Days = 120
Stock Price = $40.00
Strike Price = $49.00

Required Annual Return to WIN

1 2

120

120

120

120

$40

$40

$40

$40

$43

$45

$47

$49

$1.33
$44.33

$0.82
$45.82

$0.48
$47.48

$0.27
$49.27

10

11

12

13

37%

51%

68%

89%

Required Annual Return to WIN

2 3 4 5 6 7 8 9 10 11 12 13