SIE Exam Practice Question 211

Correct Answer: A

Explanation:

The maximum profit the writer of an uncovered call option may realize is the premium received in exchange for the contract. The maximum loss is limitless. Writers of an uncovered option receive income via premiums for writing and selling option contracts without actually owning the underlying security. Uncovered calls are considered the riskiest types of option because the value of the security may increase infinitely and the investor must buy it to meet the call, so the eventual market price will determine the magnitude of their loss.