Short Call
Components
A short call is simply the sale of one call option. Selling options is also known as "writing" an option.
Risk / Reward
Maximum Loss: Unlimited as the market rises.
Maximum Gain: Limited to the premium received for selling the option.
Characteristics
When to use: When you are bearish on market direction and also bearish on market volatility.
A short is also known as a Naked Call. Naked calls are considered very risky positions because your risk is unlimited.
Comments (17)
Peter
February 14th, 2010 at 5:59am
Hi Ade, short calls are bearish strategies so you use them when you expect stock prices to fall. A short put is the opposite - you would sell a put if you expect the market to rise.
ade
February 10th, 2010 at 1:22am
When do you use Short put and Short call?
why do ppl use it when it is not profitable?
can you show me if this is profitable?
sorry if you have mentioned but I overlooked.
raman
January 31st, 2010 at 10:25am
Best stratergy to cover your stock.
Peter
January 15th, 2010 at 2:43am
Nope, they're the complete opposite. A naked call option loses value as the market rises and a naked put loses value as the market falls. Both have a limited profit potential of the premium received when selling the option though. See this graph for a naked put
http://www.optiontradingtips.com/strategies/short-put-option.html
Andy
January 14th, 2010 at 8:32pm
Peter, is a naked call the same as a naked put?
Peter
July 10th, 2009 at 6:24am
Hi JD, you could buy the underlying stock as a hedge, which would make your position a "covered call".
JD
July 9th, 2009 at 9:23am
If I have a naked call OTM...how can I hedge my risk of loss, or is the unlimited risk just that...unlimited
Peter
May 6th, 2009 at 6:15pm
Hi George,
Yes, the amount of shares remains constant, however, as the price continues to rise your losses magnify. If you are exercised, you will have to sell the shares to the option buyer at the strike price, not the current market price. So the further away from the strike price the stock is trading at, the greater your losses become.
George
May 6th, 2009 at 1:46pm
Hi, I can see how in a short call you are limited in profit because the buyer will not exercise and your profits are the premium. But if the market rises aren't you as a selling just limited to the amount of stock you must sell to the buyer as your loss? For example if I initially own 100 shares @ 10 that I purchased, and if i sell an option and they exercise the option on me dont I just loose 1000?
Admin
March 24th, 2009 at 3:57am
That's either a Short Straddle or a Short Strangle:
http://www.optiontradingtips.com/strategies/short-straddle.html
http://www.optiontradingtips.com/strategies/short-strangle.html
Mavis
March 24th, 2009 at 1:58am
Can anyone give an example for 'short call' and short put'?
Jerry
March 16th, 2009 at 5:29am
Short call you want the market to go down and short put you want the market to go up. Both have limited profit and unlimited losses.
ADEL
March 10th, 2009 at 9:10am
Hi, may I know what's the difference between SHORT CALL and SHORT PUT?
Paul
January 26th, 2009 at 4:38am
Yes.
DAMODAR
January 24th, 2009 at 8:40am
CAN THE OPTIONS (CALLS OR PUTS) SHORT AND COVER AFTER ANY TIME BEFORE EXPIRY DATE AS FUTERS SHORTSELLING AND SHORT COVERING?
Admin
December 13th, 2008 at 11:57pm
Yes, correct. The writer is committed to selling the stock at the Strike Price if the buy decides to exercise. The premium received is the current traded price of the call option when traded.
HH
December 12th, 2008 at 11:30am
In other words, does this mean that the 'writer' is selling a contract (at a price) where the writer will commit to selling a stock at an exercised price? is the 'premium' that the writer receives considered the price of the call?
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