A covered call position is
A)the simultaneous purchase of the call and the underlying asset.
B)the purchase of a share of stock with a simultaneous sale of a put on that stock.
C)the short sale of a share of stock with a simultaneous sale of a call on that stock.
D)the purchase of a share of stock with a simultaneous sale of a call on that stock.

Question

Quizplus · Accepted Answer

A covered call position involves purchasing a share of stock and simultaneously selling a call option on that same stock. The call option sold is “covered” because the seller (or writer) already owns the underlying shares. This strategy allows for potential income from the sale of the call premium, but also limits potential capital gains on the stock if the price rises above the strike price of the call option. Option A refers to a synthetic long call position, option B refers to a cash-secured put position, and option C refers to a naked call position, which is a risky strategy.

A Covered Call Position Is