SIE (Securities Industry Essentials) Practice Exam

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Which of the following outcomes are possible for the writer of a covered call option?

Profit unlimited and loss unlimited
Profit limited and loss unlimited
Profit unlimited and loss limited
Profit limited and loss limited

The correct answer is: Profit limited and loss limited

A covered call option involves the owner of the option selling a call option for a security that they already hold. This gives the owner the potential to earn income from the sale of the call option, but also limits their potential for profit and loss. Option D, profit limited and loss limited, is the only outcome that accurately reflects the potential for this type of option. Option A, profit unlimited and loss unlimited, would suggest that the owner could potentially earn an unlimited amount of profit from the call option, which is incorrect. Options B and C also do not accurately describe the potential outcomes of a covered call option.