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Naked call

A short call with no long stock or long call behind it; theoretically unlimited loss and the highest option approval level.

Selling an uncovered call is the one common options position with no upper bound on loss. Stocks can double overnight on a bid; indices cannot, but individual names absolutely can.

Because of that, brokers require top-tier option-approval-level, impose the full naked-option-requirement, and often raise it around earnings. Most traders who want the same exposure use a credit-spread or a covered-call instead.

Example: XYZ at $50, sell the $55 call for $0.80, collecting $80 against roughly $560 of buying-power-reduction. XYZ is acquired at $75. The call is worth $20.00. Loss is $1,920 — more than three times the capital the broker had set aside for it.

Related: naked-put, undefined-risk, naked-option-requirement, covered-call

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Payoff of a long call at expiryA flat loss equal to the premium below the strike, turning upward at 45 degrees above it.Profit / loss per share08595115125Strike 105Max loss 3 — the premium paidBreakeven 108Profit keeps growingUnderlying price at expiry
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.

Educational only, not advice. Spotted an error? Post in Site Feedback.