Question

All of the following are TRUE of a covered call writing strategy EXCEPT: (A) The strategy works best in a bull market. (B) The cost basis of the stock should be considered for tax purposes. (C) The call writer is expecting little change or a fall in the price of the underlying stock. (D) Repurchasing the calls in a closing transaction could lead to a loss.

Answer 1

Answer:

(A) The strategy works best in a bull

Explanation:

In the case of the call writing strategy, the following statement should be considered

a. the stock cost basis should be relevant for the tax purpose

b. The call writer should predict the little much change or there may be the decline in the price of the stock

c. If repurchasing is done for closing the transaction so it would result a loss

Therefore the option a is to be considered