SIE practice questionmediumOptions
An investor writes a covered call. What is the primary objective of this strategy?
- AGenerate additional income on a stock position✓ Correct answer
- BProtect against a loss if the stock declines sharply
- CProfit from a decline in the stock's price
- DGuarantee the stock will be called away
Explanation
Why A — Generate additional income on a stock position
Writing a covered call generates premium income but does not protect against major declines. Profit from declines is a bearish strategy; exercise is possible, not certain.
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
- If a customer buys 1 ABC May 50 call at $3 when ABC is at $54, what is the intrinsic value?
- Which term describes the amount by which an option is in-the-money?
- Which of the following describes a put option?
- An investor buys a put option for $2 on a stock with a $40 strike price when the stock trades at $39. At expiration,…
- An investor buys a put and a call with the same strike and expiration on the same stock. This strategy is known as:
- A customer owns 100 shares of ABC stock and sells a call against it. What is the name of this strategy?
- 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…
- As option expiration approaches, what typically happens to an option's time value?