Question

22. Which of the following strategies has essentially the same profit diagram as a covered call?

a.         a long put

b.         a short put

c.         a long call

d.         a short stock

e.         none of the above

23. Which of the following strategies has the greatest potential loss?

a.         an uncovered call

b.         a long put

c.         a covered call

d.         a long stock

e.         it is impossible to say which has the greatest potential loss

24. if the AT&T July 50 call option is selling for $3.00 and the common stock is selling at $51; this option is known as un option that is

a.         in the money

b.         out of the money

c.         at the money

d.         near the money

25. If you write a call option against share of stock that you do not own, you have created a

a.         naked option

b.         out of the! money option

c.         in the money option

d.         premium

e.         covered option

Answer 1

22. B) a short put

explanation: A covered call is an option strategy which is a combination of a long stock and short call, which has the same graph as a short put.

23. B) an uncovered call

explanation: An uncovered call which is short call provides the highest potential loss.

24. A) in the money

explanation: A call option is in the money if stock price is more than strike price . In this case the stock price is 51 and strike price is 50. This shows that the option is in the money and it will be exercised.

25) A) Naked option

explanation: A naked option is a position when we sell an option on a security which we do not own.