Series 7 Exam Question 402: Answer and Explanation

Question: 402

What is the maximum potential loss for an investor who sells a call option?

• A. The strike price × 100 shares
• B. The strike price × 100 shares, less the premium
• C. The strike price × 100 shares, plus the premium
• D. Unlimited

Correct Answer: D

Explanation:

D. I figured I'd give you an easy one toward the end of the test. When buying a call option, the maximum potential gain is unlimited, so an investor who's selling a call option faces an unlimited maximum potential loss.