Series 7 practice questioneasyOptions — Covered Call Writing
An investor who owns 100 shares of XYZ stock and writes one XYZ call option has established which position?
- AAn uncovered call
- BA protective put
- CA covered call✓ Correct answer
- DA long straddle
Explanation
Why C — A covered call
A covered call involves owning the underlying stock and writing (selling) a call option against it. The investor receives premium income and is willing to sell the stock at the strike price if exercised. The long stock position 'covers' the obligation to deliver shares.
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