NAKED CALL (Short Call) | bear strategy

Short Call

Example: Sell call
Market Outlook: Bearish
Risk: Unlimited
Reward: Limited
Increase in Volatility: Hurts position
Time Erosion: Helps position
Break-Even Point (BEP): Strike Price of Short Call + Premium Received

The in-the-money naked call strategy involves writing deep-in-the-money call options without owning the underlying stock. It is an alternative to shorting the stock employed when one is bearish to very bearish on the underlying.

Selling the call obligates you to sell stock at strike price A if the option is assigned.

When running this strategy, you want the call you sell to expire worthless. That’s why most investors sell out-of-the-money options.

This strategy has a low profit potential if the stock remains below strike A at expiration, but unlimited potential risk if the stock goes up. The reason some traders run this strategy is that there is a high probability for success when selling very out-of-the-money options. If the market moves against you, then you must have a stop-loss plan in place. Keep a watchful eye on this strategy as it unfolds.

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