 |
Definition of 'Naked Call'
An options strategy in which an investor writes (sells) call options on the open market without owning the underlying security. This stands in contrast to a covered call strategy, where the investor owns the security shares that are eligible to be exercised under the options contract.
This strategy is sometimes referred to as an "uncovered call" or a "short call".
|
 |
Investopedia explains 'Naked Call'
A naked call strategy is inherently risky, as there is limited upside potential and (theoretically) unlimited downside potential should the stock rise above the exercise price of the options that have been sold.
As a result of the risk involved, only experienced investors who strongly believe that the price of the underlying stock will fall or remain flat should undertake this advanced strategy. The margin requirements are often very high for this strategy as well due to the propensity for open-ended losses, and the investor may be forced to purchase shares on the open market prior to expiration if margin thresholds are breached. The upside to the strategy is that the investor could receive income in the form of premiums without putting up a lot of initial capital.
|
-
Learn about this aggressive trading strategy that can be used to generate income as part of a diversified portfolio.
Read More »
-
Compare naked strategies to credit spreads and see if the unlimited risk of going naked is worth it.
Read More »
-
Find out why these enticing options can spell trouble for your bottom line.
Read More »
-
-
Discover the world of options, from primary concepts to how options work and why you might use them.
Read More »
-
Learn how this simple options contract can work for you, even when your stock isn't.
Read More »
|
|