Chartered Investment Manager (CIM) Practice Exam · Question
Which of the following best describes the primary objective of a 'covered call' strategy?
A covered call involves selling a call option on a stock you already own, aiming to generate premium income, particularly in a stagnant or mildly rising market.
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Question: Which of the following best describes the primary objective of a 'covered call' strategy?
Answer options: ✅ To generate additional income from an existing stock holding.
- To protect against a significant decline in the stock's price.
- To profit from a large upward movement in the stock's price.
- To reduce the overall beta of the portfolio.
Correct answer: To generate additional income from an existing stock holding.
Explanation: A covered call involves selling a call option on a stock you already own, aiming to generate premium income, particularly in a stagnant or mildly rising market. It's a common strategy for income generation.
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