Short Call


DEFINITION of 'Short Call'

A type of strategy regarding a call option, which is a contract that allows (but does not mandate) its holder to buy a security (specifically, a stock) at a particular price during a certain future period. Should the holder think the price of the security will fall between now and the day the contract expires, he/she may sell short not only the underlying stock, but the corresponding call option itself: Hence "short call."


When an investor takes a short call position, the security's price must fall in order for the strategy to be profitable. Not only must the price fall, it must fall by at least the price of the call option. The farther the fall, the greater the profit. Conversely, should the investor's hunch fail and the security's price thus rise, the strategy loses money for the investor. As there is no boundry for how high the price can rise, the potential losses are unlimited.

  1. Short Selling

    Short selling is the sale of a security that is not owned by ...
  2. Short Squeeze

    A situation in which a heavily shorted stock or commodity moves ...
  3. Short The Basis

    A futures strategy involving the purchase of a futures position ...
  4. Specialist Short Sale Ratio

    A ratio used to determine the sentiment of specialists on the ...
  5. Short Sale

    A market transaction in which an investor sells borrowed securities ...
  6. Short Term

    1. In general, holding an asset for short period of time. 2. ...
Related Articles
  1. Professionals

    Helping Clients Navigate Short Sales And Foreclosures

    Both buyers and sellers can benefit from a real estate professional experienced in dealing with short sales and foreclosures.
  2. Fundamental Analysis

    Short Sales For Market Downturns

    This strategy can help in market downturns, but it's not for inexperienced traders.
  3. Active Trading Fundamentals

    Short Sales And Foreclosures: When It's Time To Move On

    Sometimes it's better to cut your losses, but foreclosures and short selling can have devastating impacts on your credit score.
  4. Options & Futures

    Questioning The Virtue Of A Short Sale

    This controversial strategy is blamed for making and breaking markets. Read on to learn more.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Investing News

    Defensive Investing: Learn from a Hedge Fund Pro

    Looking for ideas on companies, sectors or investments to short? Consider the opinion of this hedge fund luminary.
  7. Trading Strategies

    Finding Momentum Plays in Flat Markets

    Momentum traders should reduce frequency and size in flat markets, while seeking out story stocks that continue to trend higher or lower.
  8. Trading Strategies

    Why Short Sales Are Not For Sissies

    Short selling has a number of risks that make it highly unsuitable for the novice investor.
  9. Trading Strategies

    Know When To Hold, Know When To Fold A Short Sale

    Consider making a short sale in the following circumstances: Bearish trend is developing rapidly, fundamentals are deteriorating, technical indicators are signaling "Sell," and there is an abrupt ...
  10. Personal Finance

    Playing The Decline of Traditional Retailers

    Play the decline of traditional retailers with a strategy that lowers built-in exposure to online sales.
  1. How is a short call used in a collar option strategy?

    An investor uses a short call sold above the current market price to collect a premium in a collar option strategy. The core ... Read Full Answer >>
  2. Can hedge funds outperform the market?

    Generating returns that exceed those provided by the broader market is the goal of nearly every investor. However, the methods ... Read Full Answer >>
  3. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  4. How is a short call used in a naked call writing option strategy?

    Selling Naked Calls A trader sells a naked call short at a strike price generally above the market for a premium amount. ... Read Full Answer >>
  5. What options strategies are best suited for investing in the insurance sector?

    Three segments comprise the insurance sector. The largest, property and casualty insurance, exhibits significantly less volatility ... Read Full Answer >>
  6. What are the differences between delta hedging and beta hedging?

    Hedging is used to reduce the risk of adverse price movements in an asset class by taking an offsetting position in a related ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center