A naked call occurs when a speculator writes (sells) a call option on a security without ownership of that security.
It is one of the riskiest options strategies because it carries unlimited risk as opposed to a naked put, where the maximum loss occurs if the stock falls to zero.
What is the safest option strategy?
The safest option trading strategy is one that can get you reasonable returns without the potential for a huge loss. An option offers the owner the right to buy a specified asset on or before a particular date at a particular price. Stock investors have two choices, call and put options.
Are options more risky than stocks?
Why Options Are Riskier Than Stocks
Built into the price of every option is a time premium. As time passes, that premium diminishes. To make big money in puts or calls, the stock doesn’t just need to move in the right direction. It needs to make a sharp move in the right direction in a short period of time.
Are puts riskier than calls?
What’s riskier: selling a put or buying a call? Selling a Put option is an unlimited risk strategy and buying a Call option is a limited risk strategy. However, the probability of making money on a short Put position is usually higher than the probability of making money on a long Call position.
What is covered call strategy?
A covered call is a financial market transaction in which the seller of call options owns the corresponding amount of the underlying instrument, such as shares of a stock or other securities. In equilibrium, the strategy has the same payoffs as writing a put option.