Covered Calls
Writing a call against stock you already own: the premium provides income and a small downside cushion, in exchange for capping the stock's upside at the strike price.
On the SIE the question often hands you a scenario and asks for breakeven or maximum gain, so memorize the math: breakeven equals the stock’s purchase price minus the premium received, and maximum gain equals the (strike − purchase price) + premium if the stock is called away. The “tell” is an investor buying shares and selling a call at the same time — the buy-write setup. Watch for the word “obligation”: once the call is sold, the writer must deliver if assigned, and assignment is most likely when the call is in the money (market above strike), though the OCC assigns short positions randomly.
The classic trap is choosing the covered call when the question wants downside protection — that answer is the protective put, which buys true insurance and keeps the upside open. The covered call only cushions you by the premium amount, then your loss continues all the way down. Memory hook: a covered call trades a ceiling for a check.
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