Series 7 Exam Question 104: Answer and Explanation

Question: 104

Which of the following is the riskiest option strategy?

• A. Buying calls
• B. Buying puts
• C. Writing uncovered calls
• D. Writing uncovered puts

Correct Answer: C

Explanation:

C. Writers (sellers) of uncovered options always face more risk than buyers. Remember, when buying an option with no other position, the maximum potential loss is the premium paid. So, when comparing writing uncovered puts as compared to uncovered calls, there is no unlimited maximum potential loss on puts but there is on calls, so selling uncovered calls is the riskiest option strategy.