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.”

Investopedia explains '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.


Filed Under: ,

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated.
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by additional investment would not warrant the expense. A harvest strategy is employed when a line of business is considered to be a cash cow, meaning that the brand is mature and is unlikely to grow if more investment is added.
Trading Center