A Naked Call Option is an investment strategy where you sell a CALL option, collect a premium, and secure the exercising of the call with no underlying security.
This means that if the buyer exercises the CALL option, you are obligated to sell the securities, stock, or ETFs to the option owner at the strike price, like a regular CALL option, but you must first purchase those 100 shares at the current market price.
Slow It Down, Naked Call Option Again?
Simple steps since writing, buying, selling, in the money, wheel strategy, etc terms sometimes confuses option traders.
First, A Naked Call Option is still a CALL Option.
A seller/writer guarantees the sale of security at a strike price.
An CALL option buyer has the right but not the obligation to exercise and call away those securities, stocks/ETFs, from the option writer.
Second, Why Is This Call Option Naked?
There is no collateral. The CALL option seller/writer has no collateral to secure the option if it’s exercised. This means that if that CALL option is exercised and shares are called away from the option seller, the option seller has to make good on the promise.
The option seller must buy shares to be transferred to the option holder.
Wait, Naked CALLS Have Infinite Loss?
Yes, the option seller is fully exposed to the adverse effects of an infinite rise in the stock’s price.
The Call Option Seller/Writer is fully exposed to losses, which is why it’s called a Naked Call.
Who Sells Naked Calls?
Either the inexperienced or the ultra-wealthy.
Either a person doesn’t understand the risks and wants to make money by selling Call option premiums, or a person who has great understanding sells/writes CALL options, understanding they will have to liquidate some cash to make up for losses.
Trading Options Is 100% About Risk Management, and Naked Call options have their place in financial planning, but not for this guy. I’m out.
Do You Sell Naked Calls?
If you sell naked calls, please leave a comment below. I am intrigued by the idea of earning premiums by selling CALL options without first owning the stocks, as in the Covered Call step I use in my Wheel Strategy.
I could sell more contracts without first accumulating enough money to buy stocks.
So, please leave a comment if you do Naked Call options,
 Myself with an interesting Bull Sculpture. Notice: No Lambo’s. :/ | Hi I’m Tom, A Blogger And A PIG Farmer. PIG Farmer as in I grow Passive Income Generators(PIG’s). I’ve been playing with stocks, mutual funds, and options for decades, as well as always working on my side hustle stacks. Unlike what you read online, I’ve yet to find a way to get rich quickly. Get Rich Quick isn’t happening for me. My journey has been long and continues. I hope to have so many PIGs I can stop working at my current job and volunteer as a medical worker overseas. Still waiting, but getting there. I still am a family man, and while on this Journey of Growing PIGs. I wanted to share my adventures(ups and downs), hoping you will contribute with your feedback and comments. Fun Fact: In my spare time, I am a Band-Dad! |