Q:
Which TWO statements are TRUE about writing covered calls?
I. The maintenance margin requirement is 25%.
II. Physical delivery may be required upon exercise.
III. The writer has cash on deposit equal to the cost to purchase the shares from the option holder.
IV. It is a bearish strategy.
a) I and IV
b) II and III
c) II and IV
d) I and II
A:
The correct answer is c)
I is incorrect because there is no margin requirement.
III is incorrect because a call writer must have the shares on deposit. A put writer is required to have the cash equivalent.

MORE FAQS

  1. Which of the following statements is (are) true with respect to the factors that a manager must take ...

  2. Which of the following signatures are required on a client’s new account form ...

  3. Under the Telephone Consumer Act of 1991, a telemarketer must provide which of the following to a called ...

  4. Under the Uniform Securities Act, registration with the Administrator as an investment adviser is required ...

  5. Which of the following are not types of open-end management investment companies ...

  6. If a sales representative moves from one broker-dealer to another ...

  7. Federal covered securities are subject to which of the following requirements ...

  8. Which of the following deliveries for a 600 share order, broker-dealer to broker-dealer ...

  9. Under the Uniform Securities Act, which of the following are defined as securities ...

  10. Which of the following statements is (are) true with respect to price-earnings (P/E) multiples ...

  11. Which statement(s) is/are FALSE about market risk?

  12. If a person's account is frozen, which of the following activities is allowed ...

  13. Which of the following, under the NASD Conduct Rules, would constitute a complaint ...

  14. What two components are used to calculate risk-adjusted return? I ...

  15. Zero coupon bonds are frequently cited as a popular investment vehicle for education savings ...

  16. Are dividends the best way to make money for retirement?

  17. How many attempts at each CFA exam is a candidate permitted?

  18. What's the average salary of a financial advisor?

  19. Why is Hong Kong considered a tax haven?

  20. Is smart beta cheaper than hedge funds?

RELATED FAQS

  1. Which of the following statements is (are) true with respect to the factors that ...

    The correct answer is: d) (I) is incorrect because if interest rates are expected to rise, banks will generally "increase" ...
  2. Which of the following signatures are required on a client’s new account form ... ...

    The correct answer is B. While local practices of a broker-dealer might require the client to sign the form, even when opening ...
  3. Under the Telephone Consumer Act of 1991, a telemarketer must provide which of the ...

    The correct answer is d. All the choices except II are specific requirements of the Act. In addition, the law places time-of-day ...
  4. Under the Uniform Securities Act, registration with the Administrator as an investment ...

    The correct answer is c. I is incorrect, since broker-dealers or their agents who don’t receive a fee for making investment ...
  5. Which of the following are not types of open-end management investment companies ...

    The correct answer is d) Hedge funds are extremely aggressive entities that engage in margin and short-selling.  They are ...
  6. If a sales representative moves from one broker-dealer to another ...

    The correct answer is b. I, II and III are correct since all parties are required to notify the Administrator.
RELATED TERMS
  1. Allocation Notice

    An official notification from an options clearing firm to the ...
  2. Covered Writer

    An options seller who owns the underlying security represented ...
  3. Overwriting

    An options strategy that involves the sale of call or put options ...
  4. Option Margin

    The cash or securities an investor must deposit in his account ...
  5. Premium Income

    1. In investing, income that is earned through the sale of an ...
  6. Naked Put

    A put option whose writer does not have a short position in the ...
Hot Definitions
  1. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  2. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  3. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  4. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  5. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  6. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
Trading Center