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"Shorting a call" is better known as writing a naked call. Basically, a naked call is a call on a position you don't hold, and it has unlimited risk--if you get exercised and the strike price plus the premium is lower than the stock price, you must make up the difference out of your margin account--or you'll receive a margin call from your brokerage. Many brokerages won't allow you to write a naked call, and the ones that will demand a very large margin account and a lot of experience in trading options.
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What long position is necessary to hedge a short call option?
It depends on whether the short call is covered or naked. If you have a short covered call (you own the stocks you wrote the call on), you wouldn't hedge it--if the call gets exercised you turn over the stocks you own and call it good. If you have a short naked call (you don't own the stock), hedge with a long call that has a strike price no more than the strike price of the short call. Maybe a few bucks less, if you can get it--if the counterparty to your short call exercises it, you exercise your long call, turn over the stock you received. Your profit will be the difference between the premiums on the calls, plus the difference between the strike prices.
Is call option and buy option are same or not?
As far as I know there isn't a "buy option," but a call option is an option to buy so I guess you could think of it as a "buy option."
Call option and put option?
A call option allows its purchaser to buy ("call in") stocks at a certain price on a certain date--say, 100 shares of Walmart for $50 on November 1. A put option allows its purchaser to sell ("put") stocks on a certain price for a certain date. The seller of the option has to buy them (in a put) or sell them (in a call) if the option is exercised.
What is the value of a call option on maturity?
The value of a call option on maturity is equal to its intrinsic value.For instance, a call option with a strike price of $10 on maturity and its underlying stock being at $15 will have a value of $5, which is its intrinsic value.
Explain the difference between a call option and a long position in a futures contract?
The only difference between a long call option and a long futures position is the derivative itself--one of them is an option, the other is a futures contract.
What happens if you write a covered call with a LEAP and someone wants to exercise the underlying option?
If you are "called" on your short option you will have to sell the Underlying contract for that option at the option's strike price, which will likely be the stock itself. You will then have two positions; a long LEAPO and a short stock. http://www.optiontradingtips.com/strategies/covered-call.html
How do you hedge a short call option position?
You could either buy a higher call and create a credit spread to hedge the short call option OR Buy some of the stock and use it like a covered call strategy.
If prices drop what happens to call option prices?
If the price of an underlying commodity or security drops, the value of call options will decline as well. If you are long the calls this would be bad. If you are short the calls this would be good. Long Call - Risk Limited to Option Premium Paid, Profit Unlimited. Hoping for Market Rise. Short Call - Risk Unlimited, Profit limited to the premium received for the option. Hoping for Market Decline, or stay the same. Long Put - Risk Limited to Option Premium Paid, Profit Unlimited. Hoping for Market Decline. Short Put - Risk Unlimited, Profit limited to the premium received for the option. Hoping for Market Rise, or stay the same.
Can electricity travel through air directly?
Yes. When that happens over a short distance, we call it a "spark".When it happens over a longer distance, we call it "lightning".
What is to spread an option?
To spread an option, or to create an option spread, is to put on a corresponding short position onto your existing long position (or vice versa), in order to create options spreads with specific payoff profiles. For instance, if you bought a call option, it would have limited downside risk with unlimited profit potential. But if you sold an out of the money call option on top of that call option, you would create a call spread which lowers capital outlay but also limited upside profit potential.
What long position is necessary to hedge a short call option?
It depends on whether the short call is covered or naked. If you have a short covered call (you own the stocks you wrote the call on), you wouldn't hedge it--if the call gets exercised you turn over the stocks you own and call it good. If you have a short naked call (you don't own the stock), hedge with a long call that has a strike price no more than the strike price of the short call. Maybe a few bucks less, if you can get it--if the counterparty to your short call exercises it, you exercise your long call, turn over the stock you received. Your profit will be the difference between the premiums on the calls, plus the difference between the strike prices.
Is call option and buy option are same or not?
As far as I know there isn't a "buy option," but a call option is an option to buy so I guess you could think of it as a "buy option."
What happens when volleyball referees disagree on a call?
The games stops for a short time and the referees go to talk about the call and agree on who's right and who's wrong.
What happens when one party breaks the call options?
A call option is an agreement between a buyer and a seller to settle on the price and production of a stock or product. If one party breaks the call options then the contract/agreement is null and void.
Call option and put option?
A call option allows its purchaser to buy ("call in") stocks at a certain price on a certain date--say, 100 shares of Walmart for $50 on November 1. A put option allows its purchaser to sell ("put") stocks on a certain price for a certain date. The seller of the option has to buy them (in a put) or sell them (in a call) if the option is exercised.
What is the relationship between a regular call option and binary call option and a gap call option?
Regular call options have limited risk and unlimited upside gains while binary call options have limited risk along with limited upside gain.
Is there any difference if you buy a call or sell a put?
Yes, and it's massive. If you buy a call, the option exercises if the stock price is higher than the strike price. If this happens, you resell the stock and keep the profit. If you sell a put, the option exercises if the stock price is below the strike price. If this happens, you bury the stock in the back yard until the price goes back up.
