An Investor Who "Writes" a Call Option Without the Stock

question 21

Multiple Choice

An investor who "writes" a call option without the stock in his or her portfolio to back it up is selling a(n)

• A) Call option.
• B) Put option.
• C) Out-of-the-money option.
• D) Naked option.
• E) Covered option.

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Definitions:

Credit Memo

A document issued by a seller to a buyer, reducing the amount owed by the buyer due to a return, error, or allowance.

Merchandise Returned

Refers to goods that have been sold and then returned by the customer due to various reasons such as defects or dissatisfaction.

FOB Shipping Point

A term used in shipping contracts to indicate that the buyer is responsible for the goods and shipping costs from the point of origin.

Perpetual Inventory System

An inventory tracking system that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.