SIE Exam Question 2: Answer and Explanation

Question: 2

An options contract that gives the holder the right to purchase the number of shares of the underlying security is a _________________.

• A. Put
• B. Covered
• C. Uncovered
• D. Call

Correct Answer: D

Explanation:

A call is an option contract that gives the holder the right to purchase the number of shares of the underlying security. A put is an option contract that gives the holder the right to sell the number of shares of the underlying security. A covered option means that the option writer's obligation is secured by a specific deposit whereas an uncovered option means that the option writer's obligation is not secured.