Explanation:
A written covered call consists of long stock + short call. By put-call parity, this combined position has a payoff/profit pattern that is most similar to a short put.
So the closest naked option trade is short put.
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Q-183.1. Covered call and protective put
The profit pattern of a written covered call is most similar to the pattern of which naked option trade (note: while “payoff” on the Y-axis plots the future gain/loss, “profit” nets the initial cost of the strategy and, in these cases, does not adjust for the time value of money)?
A
Long call
B
Short call
C
Long put
D
Short put
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