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

Peter January 24th, 2011 at 3:45pm

Hi Paul, yes, you can sell the option before the expiration date. Your profit/loss will be the difference between the purchase/sale price of the option. There is no risk of an early exercise as you are the option buyer.

Paul January 24th, 2011 at 1:54pm

Question: If I buy an option and it reaches the strike price, can I sell it before the expiry date and if so would I be exposed to risk if the buyer used the option to exercise his rights.

Peter December 20th, 2010 at 3:45am

Hi Amanda, no, if you sell (go short) an option then you are the seller - i.e. you can't buy and go short at the same time, it's either one or the other.

Amanda December 20th, 2010 at 2:09am

Hi,

If a call option gives the buyer the right but not the obligation to BUY so can the buyer short (sell) a call?

Peter December 13th, 2010 at 5:31pm

Hi Nomadine, no, there aren't any option strategies that will automatically "recover" a loss - that would be like instant profit. Depending on your view, however, there is probably a strategy that you could implement to provide a more suitable way to play your view while providing a better risk/reward profile than just shorting the stock.

Nomadine December 13th, 2010 at 11:10am

I have shorted a stock at 120 and it has now risen to 180 giving me a paper loss of 60 per share. Is there an options strategy to recover my loss?

Peter October 10th, 2010 at 12:24am

Hi Sonia, that combination is called a Long Strangle.

sonia October 9th, 2010 at 9:48pm

Hi I was just wondering why is that for a bull spread strategy you can only have a bull spread using Puts OR Calls. If you are bullish about a stock but are realistic. Why cant you buy a call when the stock is at $30.00 (long call) and buy put (long Put) at 50.00. Assuming you are only bullish enough to think that a stock is only going to go up $20.00.

P.S I am only a student therefore this question mind sound weird.

Peter September 27th, 2010 at 10:21pm

It all comes down to your appetite for risk - how much money to make/lose. There is no optimum point to buy back the stock/option.

JJ September 27th, 2010 at 3:46am

Confused about duration. If I want to short a stock, a short call, at what point do you have to repurchase the stock? Are there choices?

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