SIE practice questionmediumOptions Strategies
A client buys a call option. What is the maximum loss the client can experience?
- AThe full value of the underlying stock
- BThe difference between strike price and market price
- CUnlimited loss
- DThe premium paid for the option✓ Correct answer
Explanation
Why D — The premium paid for the option
Buying calls limits loss to the option premium, while selling uncovered calls exposes investors to unlimited risk. The difference between strike and market price only matters if exercised, and buying does not risk the entire underlying value.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE 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 Options questions
- Which of the following options strategies exposes an investor to unlimited loss potential?
- A customer buys a call option for $5 on a stock currently at $45 with a $50 strike. What is the breakeven price?
- Before a customer can trade options, a representative must:
- A customer sells an uncovered call. What is the risk?
- A new client wants to write uncovered options. The firm must:
- An investor owns 100 shares of DEF, currently trading at $60. They write 1 DEF 65 call at $2 and buy 1 DEF 55 put at…
- The approval of an options account must be performed by which individual?
- An investor buys a put and a call with the same strike and expiration on the same stock. This strategy is known as: