Products & Their RisksQuestion 86 of 398
The writer (seller) of a call option is obligated to:
a.Buy the underlying stock at the strike if the holder exercises
b.Do nothing; writers have only rights, not obligations
c.Deliver (sell) the underlying stock at the strike if the holder exercises
d.Pay the holder a dividend each quarter
Explanation
A call writer receives the premium and, in exchange, is obligated to sell (deliver) the underlying security at the strike price if the holder exercises the call. The writer is bearish to neutral and faces potentially unlimited loss on an uncovered (naked) call as the stock price rises.
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