answersLogoWhite

0

"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.

User Avatar

Wiki User

16y ago

What else can I help you with?

Continue Learning about Calculus

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.

Related Questions

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.


Short Call (Naked Call / Uncovered call)?

A short call, also known as a naked call or uncovered call, is a high-risk option strategy used by traders who expect a stock or other underlying asset to either decline or stay below the strike price of the option sold. This strategy involves selling a call option without owning the underlying asset.


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.


What happens if I don't sell my call option before it expires?

If you don't sell your call option before it expires, you may lose the opportunity to profit from it. The option will expire worthless, and you will lose the premium you paid for it.


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 happens if a call option expires in the money?

If a call option expires in the money, the option holder can buy the underlying asset at the strike price, which is lower than the current market price. This allows the holder to make a profit by selling the asset at the higher market price.


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 happens if my call option expires in the money?

If your call option expires in the money, you have the right to buy the underlying asset at the strike price. This means you can purchase the asset at a lower price than its current market value, potentially resulting in a profit.


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.