SIE (Training Consultants v3.5, 2025): Ch. 3 Equity Options, Sec. 5 – Summary of Option Strategies and Actions

Opening Purchase

Establishing or adding to a long option position (Buy a Call or Buy a Put).

Closing Sale

Eliminating or reducing a long option position (Sell a Call or Sell a Put).

Opening Sale

Establishing or adding to a short option position (Sell a Call or Sell a Put; must be marked “covered” or “uncovered”).

Closing Purchase

Eliminating or reducing a short option position (Buy a Call or Buy a Put).

Covered Call Writing

Writing a call while owning the underlying stock or equivalent to provide downside protection; conservative strategy.

Uncovered Call Writing (Naked Call)

Writing a call without owning the underlying stock; speculative with unlimited loss potential.

Covered Put Writing

Writing a put with funds or guarantees to cover the potential obligation; limited risk.

Uncovered Put Writing (Naked Put)

Writing a put without coverage; limited loss potential (strike price less premium), risky in bear markets.

Aggregate Exercise Price

Exercise price multiplied by the number of shares covered by the option (usually 100 shares).

What does “close” mean in options trading?

Doing the opposite transaction of what was done to open the position (not exercise).

Why do investors buy calls?

To participate in upward movement, gain leverage, limit loss to premium paid, hedge short positions, and secure a future price.

What are the possible actions when buying a call as an opening purchase?

Exercise the call, sell the option to close, or let it expire.

Why do investors write calls?

To receive premium income, especially in a neutral or down market, improving rate of return.

What is the difference between covered and uncovered call writing?

Covered – own underlying stock or equivalent; Uncovered – do not own stock, unlimited loss potential.

What are possible actions when selling a call as an opening sale?

Option exercised (sell stock), buy to close, or let option expire (keep premium).

Why do investors buy puts?

To participate in downward movement, hedge long stock, or as a limited-risk alternative to short selling.

What are possible actions when buying a put as an opening purchase?

Exercise the put, sell the put to close, or let it expire.

Why do investors write puts?

To receive premium income when expecting a neutral or upward market.

When is a put considered covered?

When investor has funds, a bank guarantee, is short the stock, or is long a put with equal/greater exercise price.

What are possible actions when selling a put as an opening sale?

Option exercised (buy stock), buy to close, or let option expire (keep premium).