Short Call Options aka Naked Call

Short (naked) Call Option Payoff Graph

B/SStrikeTypePrice
Sell 1$45Call$1.29
Net Credit($129)

A short call is simply the sale of one call option. Many refer to short positions as being "naked" the option. Selling options is also known as "writing" an option.

The Max Loss is unlimited as the market rises.

The Max Gain is 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.

Short Call Option Greeks

Delta

Short Call Option Delta Graph - 30 Days to ExpirationShort Call Option Delta Graph - 3 Days to Expiration

Gamma

Short Call Option Gamma Graph - 30 Days to ExpirationShort Call Option Gamma Graph - 3 Days to Expiration

Vega

Short Call Option Vega Graph - 30 Days to ExpirationShort Call Option Vega Graph - 3 Days to Expiration

Theta

Short Call Option Theta Graph - 30 Days to ExpirationShort Call Option Theta Graph - 3 Days to Expiration

98 Comments

Sam January 9th, 2012 at 8:10am

Hi Peter. Thanks for the response.
I would assume that once the Div has been announced, it would be reflected in the price, the price dropping by Div amount on ex-Div day. Buying and selling after ex-Div date would net a zero change.
Correct?

Peter January 8th, 2012 at 10:25pm

Hi Sam,

I would say that as a "rule of thumb" that you should expect an in-the-money call option to be exercised right before the ex-dividend date of the stock. This will occur as the holder of option will exercise to take position of the stock so s/he will collect the dividend payment.

Sam January 7th, 2012 at 7:52pm

Hi. Any rule of thumb for when a short call will be exercised? e.g. I buy stock at 100 and sell a call 3 months out at 110. Two months later stock is at 120. Will the option be called? The call buyer's profit is 100%. ROI on add'l capital required is ~10%

Thanks.

Peter November 16th, 2011 at 7:47pm

Hi Mark, I've moved our recent conversation to the Short Put page.

Peter November 13th, 2011 at 6:43pm

No, you don't have to do anything...just allow the options to expire.

Sam November 11th, 2011 at 7:30pm

I have under written covered call options that expire on Nov 18, 2011. I have gotten the premium for the sale. Since I did a 'sell open' to sell the options, do I do a 'buy close' to close this position or can I just let the options expire and keep the premium? Do I have to do something to keep the premium I have received?

Peter October 9th, 2011 at 9:18pm

It's because the stock has been experiencing a lot of volatility lately (currently around 70%), which has inflated the option premiums.

But yes, it's a great return for that time frame! The stock would have to trade down to $42 before you start losing on this trade.

Tom October 9th, 2011 at 8:48am

Hello covered call investors. Why do you think that Prudential's (PRU) 11/19/11covered call option premium at the money yields nearly 8% for roughly a 1 1/2 month investment? The stock carries a baa2 Moody's rating and has a less than 5% outstanding shares short. Seems too good to be true. Thanks!

Mike September 9th, 2011 at 11:28am

Thanks!!! Not going to be selling calls today though :~(

Peter September 9th, 2011 at 8:24am

Yes, I would consider doing that. I own 200 MSFT right now and am considering doing the same. The problem I face though is that if the stock does rally hard I will get exercised and only make the profit at the strike, which is fine if that's all I think the stock is worth...problem is that I always kind of want the stock to keep going higher.

I don't think I will end up selling the calls though...I will probably hold onto the stock and let it ride a bit.

But sure, if you sell 2 calls you will lock in some profits and capture some premium too. Up to you though ;-)

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