Compare the cash inflows/ outflows, profits, and potential loss from the covered call and sale of the put. Which is better if you are able to invest any cash inflows and earn $ 1.25?

Expert Answers
psyproffie eNotes educator| Certified Educator

When you are looking which type of investment is best to earn money you want to consider the pros and cons of all of your options. There are benefits and problems to inflows and outflows, profits, and what the potential losses are.

Cash inflow is money from another party or cooperation that are used for core operations of the company looking to make a profit. An example of this could be fees paid by customers as part of the business arrangement Cash outflow is money sent to another company or party as part of core operations. An example of this could be payments made to employees on payroll.

Profit is any money that a company makes selling it’s intended product or service, and potential losses are areas where the company may or is projected to lose money.

In regards to earning money a company is most likely to make money on cash inflow, for example banks and airlines make the majority of their money on fees that customers pay for their services.