Question

Jacob currently does not own AAPL but would like to buy some at a lower price. He could conceivably buy the stock at his price and make a few dollars for his trouble by

a. selling naked puts at a strike price lower than the current price.

b. selling covered puts at a strike price lower than the current price.

c. selling covered calls at a strike price lower than the current price.

d. buying naked calls at a strike price higher than the current market price.

e. selling put options on Samsung.

Answer 1

The correct option is C.

The call is the option that gives the right to buy a underlying at the specified price which means the investor is bullish. and in the same way in put, the investor is bearish.\

Covered call means the simultaneously buying the share and selling the call option. On selling the call option the investor will receive the premiuim of selling which will reduce the cost of buying the share for the investor.

So he will buy the shares and sell the same number of the option to reduce his cost of owning a share.