Covered calls (downside protection?) some say YES, others NO


Just came across with one more “ambiguity”:

  • CFAI Mock 2012 and Q43 says “ covered calls do NOT provide downside protection”…

I had some weeks ago post this question “do covered call provide some downside protection?”, and this because I answered NO and the answer was wrong : the premium earned DO provides some downside in case of losses in underlying.

I had previously thought the same way as the answer now given by CFAI, NO downside protection, and I inadvertly changed my mind due to other provider.

Just to warn and help you guys. An easy one for sure but if did not wrote this mock I would eventually lose this one on exam day .

best of luck

If thats true cfa is not worth doing.

The answer is no significant downside protection. In that question I think they were saying “well there is SOME/A LITTLE downside protection since the premium you receive offsets your loss”

But in no way did they mean SIGNIFICANT downside protection like a put would.