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FINRA Series 7 Exam Prep

Category - Series 7

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Bubba owns 200 shares of XYZ at $90, and wishes to hedge the position while generating income. What is the best recommendation?

sell calls
sell puts
buy calls
buy puts

Explanation

Answer: A - sell calls. Calls are covered by the underlying stock. If the calls were exercised, the stock would be delivered to meet the obligation. The income also reduces the break-even of the stock.

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