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John10

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tT
发表于 2011-7-11 19:38 | 只看该作者

CFA Sample V2 Q.13 - Covered Call

writing, protect, correct, recently, particular
The client wants to protect her gains from owning a particular stock that has recently risen in value.
The right answer is that she can do it with a cover call strategy (writing the call on that stock).

How is that correct?
Wouldn't that limit her upside rather than protecting her gains?
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liangfeng

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发表于 2011-7-11 19:38 | 只看该作者
premium from call short provides cusion for downside protection

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Unforseen

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发表于 2011-7-11 19:38 | 只看该作者
As an individual recommending a client, am I suppose to let them believe that this cushion (premium collected from writing the call) is enough to protect their gains?

I guess you are correct. The key word here is that she wants a strategy that will help her protect ONLY her GAINS.
If the stock declines in value more than the gains, then it's another issue not related to this question...
Is that it?

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oneboy

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4#
发表于 2011-7-11 19:38 | 只看该作者
stock declines in value - since you sold the call - the client gains.

when it gains - call is not exercised - and then you have gained the premium for writing the call.

CP

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