When you write a covered call, you:
A) Forfeit upside potential gains in exchange for current income
B) Risk of having to buy shares of the underlying security at the market price
C) Risk selling your underlying shares at a currently unknown price
D) Are basically offering to buy shares in exchange for receiving the option premium
E) Accept unlimited risk

Question

Quizplus · Accepted Answer

When you write a covered call, you are selling someone the option to purchase shares of the underlying security from you at a predetermined price (strike price) within a specific period of time in exchange for receiving the option premium. By doing this, you forfeit some of the potential gains that you could make if the stock price were to rise above the strike price. However, you do receive a current income from selling the call option.

When You Write a Covered Call, You