Investment VehiclesQuestion 90 of 100
An investor writes a covered call. This strategy:
a.Has unlimited downside beyond a naked position
b.Generates premium income while capping upside on the underlying shares owned
c.Requires no ownership of the underlying
d.Is purely a bearish bet
Explanation
Writing a covered call means selling a call against shares already owned, collecting premium income in exchange for capping potential upside if the stock rises above the strike. Because the position is covered by owned shares, risk is limited compared with a naked call. It suits a neutral to mildly bullish outlook.
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