Series 6 Practice Exam 2025 – Complete Exam Prep Resource

Under ERISA (Employee Retirement Income Security Act), the writing of covered calls is indeed allowed in retirement plans. Covered calls refer to a strategy where an investor holds a long position in an asset while simultaneously selling call options on the same asset. This strategy can generate income through premiums from the call options while the investor continues to hold the underlying asset.

Retirement plans, including qualified plans such as 401(k)s, may engage in options trading as long as the transactions adhere to prudent investment principles. It is crucial for fiduciaries overseeing these plans to ensure that such strategies align with the overall investment strategy and risk tolerance of the plan participants.

While some restrictions and conditions may apply—such as ensuring participants are adequately informed about the risks involved—ERISA does not outright ban the execution of covered calls in retirement plans. Therefore, this strategy can be permissible, making the answer that it is allowed the most accurate response.