FINRA General Securities Representative SIE Question # 22 Topic 3 Discussion
SIE Exam Topic 3 Question 22 Discussion:
Question #: 22
Topic #: 3
A customer holds 1,000 shares of Company XYZ and wants to sell covered calls against this position. What is the maximum number of contracts that the customer could sell and still remain covered?
Each option contract represents 100 shares. A covered call involves selling a call option while holding an equivalent number of shares to deliver if the option is exercised.
The customer owns 1,000 shares.
Since 1 contract = 100 shares, the maximum number of contracts the customer can sell is:1,000 shares รท 100 shares/contract = 10 contracts.
B is correctbecause selling 10 contracts corresponds to 1,000 shares, fully covering the position.
[Reference:SIE Study Guide, Chapter 8: Options Strategies, ]
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