SIE (Securities Industry Essentials) Practice Exam

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What is a short call in option trading?

  1. The right to buy at the strike price

  2. The right to sell at the strike price

  3. The obligation to sell at the strike price

  4. The obligation to buy at the strike price

The correct answer is: The obligation to sell at the strike price

A short call in option trading is an option that gives the holder the obligation to sell the underlying asset at the strike price. This means that if the stock price increases, the holder of the short call would need to sell the asset at a lower price than its current market value, resulting in a loss. This is different from a long call, which gives the holder the right to buy the underlying asset at the strike price. Options A and B mention the right to buy and sell respectively, which are characteristics of long call options. Option D mentions the obligation to buy, which is a characteristic of a short put option.

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