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.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 758+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Investment Information & Recommendations questions
- Which of the following options positions requires a margin account?
- An investor buys 1 RST Feb 40 call at $3 and buys 1 RST Feb 35 put at $2. At expiration, RST is at $30. What is the…
- Which two options positions are on the same side of the market (bearish)?
- What is the maximum loss for a long straddle?
- An investor holds 1 OEX (S&P 100) 2100 call. At expiration, the index closes at 2135. What cash settlement does the…
- An investor buys a put with a higher strike price and writes a put with a lower strike price, both with the same…
- An investor buys 100 shares of XYZ at $45 and writes 1 XYZ Jun 50 call at $3. XYZ rises to $60 at expiration. What is…
- The OCC's exercise-by-exception rule automatically exercises options that expire in-the-money by at least: