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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

Under a covered call strategy, what is the position held by the investor?

A covered call consists of holding the underlying shares and writing a call option on them. The premium earned provides some income and downside cushion, but gains are capped once the price rises above the strike. Long shares with a long put is a protective put instead.

  1. ALong shares and short call option on the same sharesCorrect
  2. BShort shares and long call option on the same shares
  3. CLong shares and long put option on the same shares
  4. DShort call and short put at the same strike

Explanation

A covered call means owning the underlying shares and selling a call against them. The premium received gives limited downside cushion but caps the upside above the strike. Long shares with a long put is a protective put, a different strategy.

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