A naked call refers to a trading strategy in the options market where an investor sells a call option without owning the underlying asset. In simpler terms, it involves selling a call option on a stock or other asset without having a corresponding position in that asset.
When a trader sells a naked call, they have the obligation to sell the underlying asset to the option buyer at the predetermined strike price if the option is exercised. However, since they do not own the underlying asset, they are exposed to significant risks.
The main risk of a naked call strategy is unlimited potential losses. If the price of the underlying asset rises significantly, the call option buyer may choose to exercise the option, forcing the naked call seller to buy the asset at a higher price and sell it at the agreed-upon strike price, resulting in substantial losses.
Naked call strategies are considered high-risk and are typically employed by experienced traders who have a high tolerance for risk. It is important to thoroughly understand the potential risks and market conditions before engaging in naked call options trading.
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Member SinceDec 12, 2022
Posts 46
Haturn
May 25, 2023 a 12:21When a trader sells a naked call, they have the obligation to sell the underlying asset to the option buyer at the predetermined strike price if the option is exercised. However, since they do not own the underlying asset, they are exposed to significant risks.
The main risk of a naked call strategy is unlimited potential losses. If the price of the underlying asset rises significantly, the call option buyer may choose to exercise the option, forcing the naked call seller to buy the asset at a higher price and sell it at the agreed-upon strike price, resulting in substantial losses.
Naked call strategies are considered high-risk and are typically employed by experienced traders who have a high tolerance for risk. It is important to thoroughly understand the potential risks and market conditions before engaging in naked call options trading.