Question of the Week
Writing uncovered calls
b) Establishing bear put spreads
c) Opening long combinations
d) Establishing debit call spreads
correct answer is a.
The riskiest of all options positions is writing uncovered—or naked—calls, because the writer is subject to unlimited losses. The ROP who approves this strategy would only do so after extensive scrutiny of the client’s financial condition and ability to withstand the risk. All the other choices are positions in which the most that the investor can lose is the premium invested.