Series 7 - General Securities Representative Exam
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Which of the following is a defined risk strategy?
Buying an option
A
Selling stock short
B
Selling an index ETF call
C
Selling a naked call in a stock
D
Explanations
Of the 3 choices, only buying an option is a defined risk strategy. The amount of risk is limited to the premium paid. Selling stock short entails unlimited risk as the price can theoretically rise to infinity, just like selling an index ETF call or selling a naked call in a stock