Chartered Investment Manager (CIM) Practice Exam · Question
A Canadian investor owns 1,000 shares of XYZ Corp., currently trading at $50 per share. To generate income while limiting potential downside risk over the next three months, which options strategy would be most suitable?
Selling covered call options generates premium income against existing stock holdings (covered), providing some limited downside protection from the premium rec
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Question: A Canadian investor owns 1,000 shares of XYZ Corp., currently trading at $50 per share. To generate income while limiting potential downside risk over the next three months, which options strategy would be most suitable?
Answer options:
- Buying 10 put options on XYZ Corp. with a $45 strike price. ✅ Selling 10 covered call options on XYZ Corp. with a $55 strike price.
- Buying 10 call options on XYZ Corp. with a $50 strike price.
- Selling 10 naked put options on XYZ Corp. with a $40 strike price.
Correct answer: Selling 10 covered call options on XYZ Corp. with a $55 strike price.
Explanation: Selling covered call options generates premium income against existing stock holdings (covered), providing some limited downside protection from the premium received, while limiting upside potential.
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