Products & RisksQuestion 38 of 125
An investor owns 100 shares of XYZ and sells 1 XYZ call against the position. This strategy is known as:
a.A protective put
b.A covered call
c.A long straddle
d.A naked call
Explanation
Selling a call against stock already owned is a covered call. It generates premium income and provides limited downside cushion, but it caps the upside because the shares may be called away if the stock rises above the strike. Because the writer owns the underlying shares, the call is 'covered' rather than naked.
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