If the writer of an option, holds shares of the stock or an actual quantity of the commodity when she writes the call option on it, her position is said to be:
A)protected.
B)exposed.
C)covered.
D)naked.

Question

If the writer of an option, holds shares of the stock or an actual quantity of the commodity when she writes the call option on it, her position is said to be:
A)protected.
B)exposed.
C)covered.
D)naked.

Quizplus · Accepted Answer

The term "covered" refers to the fact that the writer has a position in the underlying asset that can be used to fulfill the obligations of the option contract. This provides some protection to the writer as the underlying asset can be delivered to the option holder if necessary. Option writers who do not have a position in the underlying asset are said to be "naked" and are exposed to potentially unlimited losses.

If the Writer of an Option, Holds Shares of the Stock