Question

Which of the following is/are correct about selling a covered call? I. It means buying a...

  1. Which of the following is/are correct about selling a covered call?

I. It means buying a share of a stock and selling a call on a stock.

II. The payoff from selling a covered call is the same as that from selling a put on a

1

stock and buying a risk-free zero-coupon bond (i.e., lending some fund at the risk-free rate).

A. I only

B. II only

C. both I and II

D. None of the above

E. Insufficient information

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Homework Answers

Answer #1

Option A is correct. I only.

Covered Call is when you buy the underlying stock and at the same time selling the Call Opiton then waiting for call option to get exercised or expire. If exercised, you will sell the underlying, if not you make profit of premium.

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