SIE Exam Question 135: Answer and Explanation

Question: 135

An option that is written against stock owned is a/an ____________ option.

• A. Naked
• B. Covered
• C. Open
• D. Closed

Correct Answer: B

Explanation:

An option that is written against stock owned is a covered option. When a trader sells an options contract without actually owning the underlying asset, this is called a naked option. An options order is classified as buy-to-open when a trader is seeking to establish a new position (call or put) in a given option. In contrast, an options order is classified as buy-to-close when the trader is seeking to close out an existing position.