Options
⏱ ~3-min readAceMark Guide
What this topic is really about
Selling a call while owning the underlying stock is correct because the stock position covers the obligation to deliver the shares if the option is exercised. Buying calls without owning the stock (option B) is a speculative long position, which lacks the income-generating and downside-protection characteristics of a covered call.
Buying a call option grants the holder the right, but not the obligation, to purchase the underlying stock. If the stock price falls below the strike price, the option expires worthless, limiting the investor's maximum loss to the premium paid. Unlimited loss (Option A) is a risk associated with writing uncovered calls.
See the mechanism
A call option grants the holder the right, but not the obligation, to purchase the underlying asset at a specified strike price. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.
An exam-style question, fully explained
A call option gives the buyer the right to:
- Identify what the question tests: A call option gives the buyer the right to:.
- A call option grants the holder the right, but not the obligation, to purchase the underlying asset at a specified strike price.
- In contrast, a put option, rather than a call, gives the buyer the right to sell the asset, making Option A incorrect.
Traps the examiner sets
- A call option grants the holder the right, but not the obligation, to purchase the underlying asset at a specified strike price.
- Buying a call option grants the holder the right, but not the obligation, to purchase the underlying stock.
Test your recall
Answer each from memory — you'll see instantly whether you're right and why.
Run a focused 10-question mini-mock on Options and see it stick.
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