I keep seeing this term everywhere but I am not sure what it means.
I understand regular call options, but what makes a call “naked”? Is it riskier than others?
I want to grasp all strategies to avoid mistakes.
Think of naked calls like selling insurance on something you don’t own. You’re promising shares you don’t have.
The risk is huge - your losses can be unlimited. Stock keeps going up? You’ll have to buy at whatever the market price is to cover your promise.
Covered calls are way safer since you actually own the shares.
A naked call is when you sell a call option without owning the underlying stock. It’s a bet that the stock price will not exceed the strike price. The risk is high because if the stock price rises significantly, your losses can be unlimited. You collect a premium upfront, but if the price climbs, you have to buy the stock at market price and sell it at the strike price, which can lead to substantial losses. Regular calls limit your loss to what you invested, making them a safer choice.
Selling a naked call means you don’t own the stock. It’s very high risk.
This strategy destroyed me in my second year trading. Thought Apple would stay flat and sold naked calls for what seemed like easy money.
Stock rocketed 15% after earnings - wiped out three months of gains in one trade. Couldn’t sleep for days knowing my losses could’ve been infinite.
Just buy calls until you’ve got real experience and serious capital.
Naked call means you sell a call option without owning the stock. If the stock exceeds the strike price, losses can be unlimited. Brokers enforce high margin requirements, restricting beginners.