SIE practice questionmediumCovered calls
If a covered call is exercised, what happens to the investor’s stock position?
- AThe investor’s maximum loss is unlimited
- BThe investor retains ownership regardless
- CThe investor must buy more shares
- DThe investor must sell the stock at the strike price✓ Correct answer
Explanation
Why D — The investor must sell the stock at the strike price
Exercised covered calls result in the sale of stock at the strike price. The other statements do not reflect the covered call mechanics.
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