Asked by Marinda Carraway on May 11, 2024
Verified
You invest in the stock of Rayleigh Corp. and write a call option on Rayleigh Corp. This strategy is called a ________.
A) covered call
B) long straddle
C) naked call
D) money spread
Call Option
A financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other assets at a predetermined price within a set time frame.
Covered Call
An options strategy where an investor holds a long position in an asset and sells call options on that same asset to generate income from the option premiums.
- Acquire knowledge on the utilization of investment techniques involving protective puts, covered calls, and the strategies of bull and bear spreads.
Verified Answer
AP
Ashley ParksMay 12, 2024
Final Answer :
A
Explanation :
Writing a call option while holding the underlying stock is known as a covered call. A long straddle involves buying a put and call option at the same strike price and expiration date, while a naked call involves writing a call option without holding the underlying stock. A money spread is a term that is not commonly used in finance.
Learning Objectives
- Acquire knowledge on the utilization of investment techniques involving protective puts, covered calls, and the strategies of bull and bear spreads.