BE CAREFUL WITH OPTIONS QUESTIONS ON THE SIE EXAM!
Plan on taking the SIE Exam? Watch out for questions dealing with Options, such as what is the maximum profit, maximum loss, and breakeven point on an options position. Consider James, a customer who believes in writing covered calls. Writing covered calls means that James buys or owns 100 XYZ shares at 48, and then writes one call XYZ June 50 for a premium of 6. James has established a position of writing a covered call on XYZ shares. A typical question that you may see is what is the maximum profit on James' position? To answer this question correctly, you need to apply the formula for Writing Covered Calls: Maximum Profit equals the strike price minus the stock cost plus the premium received. Or, 50 minus 48 plus 6. This equals 8 points, or $800, which is the maximum profit on this position. Here's another possible question on Writing Covered Calls. Consider Harriet who purchases 100 ABC shares for 52 1/2, and writes 1 call ABC July 50 for 7. What is the maximum profit on th...