A call option is a contract that guarantees its owner the right to buy a certain number of shares of a stock at a particular strike price on or before a specific expiration date. A call option is a derivative contract that grants its buyer the right to purchase shares at a pre-determined price. What Are Call Options and How Do They Work?
What is a naked call option?
A naked call option is when an option seller sells a call option without owning the underlying stock. Naked short selling of options is considered very risky since there is no limit to how high a stock’s price can go and the option seller is not “covered” against potential losses by owning the underlying stock.
What is a short call option?
Short call options are mainly used for covered calls by the option seller, or call options in which the seller already owns the underlying stock for their options. The call helps contain the losses that they might suffer if the trade does not go their way.
What is a covered call option?
1. Covered Call Option A call option is covered if the seller of the call option actually owns the underlying stock. Selling the call options on these underlying stocks results in additional income, and will offset any expected declines in the stock price.
