Question

A covered call position is A. the simultaneous purchase of the call and the underlying asset....

A covered call position is A. the simultaneous purchase of the call and the underlying asset. B. the purchase of a share of stock with a simultaneous sale of a put on that stock. C. the short sale of a share of stock with a simultaneous sale of a call on that stock. D. the purchase of a share of stock with a simultaneous sale of a call on that stock. E. the simultaneous purchase of a call and sale of a put on the same stock. I know the answer is D, but I don't understand why.

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Answer #1


Correct option is > D. the purchase of a share of stock with a simultaneous sale of a call on that stock.

Covered call option is naming of a strategy of purchase of stock and selling of call option to earn premium when the premium is heavy.

In selling call option, you only earn premium and lose when stocks go up you will lose because you have pay the increase price from strike price to buyer of the call.

Selling a call will make you earn premium. And if stock falls you have coverage from underlying stock to because you purchased it…hence, any shortfalls of sell call will be compensated by purchased stock price rise.

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