Series 7 practice questioneasyOptions — Covered Call vs Uncovered Call
What is the primary difference between a covered call and an uncovered call?
- ACovered calls have higher premiums
- BThe covered call writer owns the underlying stock
- CUncovered calls can only be written in margin accounts
- DBoth B and C✓ Correct answer
Explanation
Why D — Both B and C
A covered call writer owns the underlying stock (or an equivalent position), while an uncovered call writer does not. Uncovered calls must be written in margin accounts because of the potentially unlimited loss. Covered calls can be written in cash accounts since the writer already holds the shares needed for delivery.
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