Covered Calls : CFA cant even get their own questions right

CFA Level III Derivatives
#1

There’sbeen a few posts talking about the confusion surround ‘risk’ or ‘risk protection’ and the writting of covered calls.

http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91313019 talks about about the confusion , and decides that covered calls do not provide protection. Thats what I have thought all along.

http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91311259 also discusses the same thing, but notes that there is a little bit of ‘protection’ in that there is earned premium.

Im not sure if the original posters realised or not, but even CFA confuses themselves. 2011 Sample exam Q13 is the EXACT same question / scenario set as 2012 Mock q 43. The EXACT same. And guess what - CFA gave completely different answers : 2012 : covered calls do not provide protection (answer B correct), 2011 Covered calls DO provide protection (answer A correct).

Unbelievable.

I’m going with no protection as that is both the correct answer to my understanding (15 years of trading the things) as well as the ‘latest’ CFA answer.

#2

Yeah I think you have to go with the “spirit” rather than the “letter” of the law so to speak on these questions. Covered calls of course provide some downside protection, an amount equal to the call premium, but I think CFAI would prefer us not to think this way.

#3

What really irks me about the whole “secrecy” of the tests (i.e. not releasing published answers) is that it doesn’t provide you with a basis to challenge your score.

Let’s face it, some of the questions/answers ARE ambiguous, and some could probably even be considered “wrong,” whether by academics or industry professionals. The only real solution is to give yourself enough margin of error so not getting the “preferred” answer doesn’t send you over the line.

I’ve never actually used the CFAI materials, but for lots of the L3 Schweser stuff it seems like the person who wrote the material had never worked in any related function.