I have been following some very liquid options, and have made the following observations. Can someone please help me to clear this strategy up:
Purchase 1,000 BHP shares (closed today @ $25.22) = $25,220
Sell 1 $24.50 October call option (@ $1.5) = $1,500
Will most likely be exercised at $24.50 = $24,500
Outgoings = $25,220
Incomings = $26,000
Gross Profit = $780
Take out brokerage, and the profit is still around $500 depending on fees etc.
If for some freak chance you don't get exercised, the profit is $1,500 (less brokerage).
Am I missing something here?