An investor is long 300 shares of CTS stock and short 30 CTS May calls. This position can best be described as A) a credit spread with a limited gain potential. B) a debit spread with no gain potential. C) a ratio spread with an unlimited loss potential. D) a long stock, short call hedge with a limited loss potential.

D) a long stock, short call hedge with a limited loss potential.

Explanation:

When you use a short call to hedge a long call, it is called a covered call. In this case, the covered call is used to hedge against possible decreases in the price of the stocks. Since the long call was made, we can assume that the investor believes that it is more likely that the price of the stocks will increase.

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