What is one possible outcome for the writer of a covered call option?

The writer of a covered call option has a profit potential that is limited because the maximum profit is capped at the premium received from selling the call option plus the difference between the stock's purchase price and the strike price of the call option, if the stock is called away. Therefore, if the underlying stock price rises significantly above the strike price, the writer misses out on any upside beyond that level, resulting in limited profit potential.

In terms of losses, the writer's loss is also limited because they own the underlying stock. If the stock's price decreases significantly, while they still may incur a loss on their stock holding, the income received from the premium can offset some of that loss. Thus, both potential losses and profits for the writer of a covered call are limited, making this option a relatively controlled and lower-risk strategy compared to other forms of options trading.

This established framework clarifies why option B is the correct answer: it accurately reflects the limited nature of both profit and loss for writers of covered call options.