Q:
Your client, Todd, owns 100 shares of HAT
stock in his taxable stock portfolio. The stock has
been inactive for the last year and Todd expects it
to have another sluggish year ahead. To help Todd increase
his return on the stock and reduce risk, you would
recommend which of the following strategies?

a) Sell a call on HAT stock
b) Buy a put on HAT stock
c) Sell a put on HAT stock
d) Buy a call on HAT stock

A:
The correct answer is a):
Since Todd owns the stock and expects another stagnant
year ahead, he would employ a covered
call
strategy and sell a call on HAT stock. This strategy allows
Todd to collect a premium on the call that he sells
which also reduces his risk by the amount of premium
received. He must deliver the stock to the purchaser
of the call if the option is exercised.

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