If you combine a long stock position with selling an at-the-money call option, the resulting net payoff profile will resemble the payoff profile of a ________.
A) long call
B) short call
C) short put
D) long put

Question

Quizplus · Accepted Answer

Combining a long stock position with selling an at-the-money call option creates a covered call strategy. This strategy limits the upside potential (due to the call option) while still exposing the investor to downside risk if the stock price falls. This payoff profile is similar to that of a short put option, where the maximum profit is limited to the premium received, and losses increase as the stock price falls.

If You Combine a Long Stock Position with Selling an At-The-Money