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. A margin account has a long market value of $12,000, a debit balance of -$6,000 ...

  2. Which of the following statements is (are) true with respect to setting the proper constraints in managing ...

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

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

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

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

  7. Which of the following are tools that are employed by the Federal Reserve in its efforts to control the money supply?

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

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

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

  11. What is Warren Buffett's annual salary at Berkshire Hathaway?

  12. Which United States Presidents have run the largest budget deficits?

  13. Which country has the most gold?

  14. Human capital vs. physical capital: What is the difference?

  15. Can moving to a higher tax bracket cause me to have a lower net income?

  16. How did the financial crisis affect the banking sector?

  17. Do beneficiaries pay taxes on life insurance?

  18. How do I become a Chartered Financial Analyst (CFA)?

  19. Can you invest in hedge funds?

  20. What do economists believe causes economic growth?

RELATED FAQS

  1. A margin account has a long market value of $12,000, a debit balance of -$6,000 ...

    The correct answer is a. I is correct since the stock's currently valued at $12,000 are increasing 20% or $2,400. II is incorrect ...
  2. Which of the following statements is (are) true with respect to setting the proper ...

    The correct answer is: d) Choice II is incorrect because the longer the investment horizon, the less emphasis must be placed ...
  3. 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" ...
  4. Which of the following statements is(are) true with respect to the factors that ...

    The correct answer is: c) (I) is incorrect because while he amount of new underwriting business that may be undertaken is ...
  5. 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 ...
  6. 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 ...
RELATED TERMS
  1. Covered Writer

    An options seller who owns the underlying security represented ...
  2. Pin Risk

    A risk that the writer of an options or futures contract faces ...
  3. Naked Writer

    An options seller who does not own the underlying security for ...
  4. Grantor

    1. A seller of either call or put options who profits from the ...
  5. Put To Seller

    The exercise of a put option. Put to seller would usually occur ...
  6. Writing An Option

    The expression "writing an option" refers to the act of selling ...
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center