SIE - Securities Industry Essentials Exam

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Which of the following options positions features limited risk and unlimited profit potential?

Long put
A
Long call
B
Short covered call
C
Short call
D

Explanations

Long call. The maximum risk is the amount paid for the call. Since an underlying asset can theoretically go to infinity, the profit potential is unlimited. Long puts have a defined profit potential because the underlying can only go to zero. Short calls have undefined risk and defined profit potential. Covered calls have limited risk and limited profit potential.