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"Writing", "Selling" and "Granting" are all terms that can mean Going Short the option.
"Writing a Naked Option" is simply going short the option. It seems super risky because when you Grant Options your profit is limited to the Option Premium that you receive for the Option, yet your risk is unlimited.
Naked Call - Profit Limited to Premium Received. Risk is Unlimited, if the market keeps rising, you keep losing.
A "Covered Call" as you can infer from the name offers a degree of safety over the Naked Call. In a covered call you limit the risk by buying the underlying security. SO you now have two open positions:
Short the Call
Long the Security
So for example, you buy 1,000 shares of IBM at $50.
Then you SELL a Call option to buy 1,000 shares of IBM at $50. You receive $3,000 for the option.
So in essence, you have $3,000 (the premium received) in your account, BUT don't celebrate too quickly because you're on the hook should IBM Rise.
However, the good news is that IF the market goes against you, you gain on the shares of IBM which pay off the loses on the call. Viola, you are covered.
Covered Call - Limiting the risk factors inherent in option granting, naked selling or writing utilizing the underlying securities.
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The difference between writing a covered and a naked call is simple.
When you write a covered call, you own the underlying stock. There are some hedging strategies using puts and calls together, and you can also "lock in" profit with a covered call.
Example: you own a stock you know goes up and down in price on a cyclical basis (meaning it has a pattern of ups and downs that repeats itself year to year) that you paid $20 for. You think the highest it's going to get is $45, so you write a covered call at $45. You also think it will hit $20 in six months, so you buy a one-year put at $20...but that's not part of this discussion. If it actually does hit $45 you get a nice chunk of change dropped in your brokerage account and your stock becomes someone else's problem.
When you write a naked call, you don't own the stock and you believe it will never rise to the call's strike price. In that case your profit is the premium on the option. If it does you've pretty much had it unless you've got your call hedged with another call.
What else can I help you with?
What is the difference between currency future and currency option?
The difference between a currency future and a currency option is the option is the amount paid is all that is at risk and with future you could lose a lot more.
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 is the difference between free form option and crop option?
Free - from selection:. In case of free from selection we can select the part of picture in any form. Crop option:. But in crop option a picture can be selected either in square form or rectangular form.
Explain the difference between a put option and a short position in a futures contract?
Well, the first difference is the root difference between a futures contract and an option contract: in a futures contract you MUST complete the sale at the end of the contract (if you didn't buy it back before the settlement date) but in an option you CAN.Once we're past that, the short position in a futures contract--the person who has the item the contract is derived from, such as a thousand bushels of wheat--is the same as the buyer of a put. Both of them have the thing now, and will transfer title to it after settlement or exercise.
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.
What is the difference between thesaurus and synonyms option?
what is the difference between thesaurus and synonym
What is the difference between currency future and currency option?
The difference between a currency future and a currency option is the option is the amount paid is all that is at risk and with future you could lose a lot more.
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 is difference between argument and option?
an argument is a disagreement between two people while an option is a preffered choice or point of view.
What is the difference between a basic option car and full option car?
The difference between a basic and full option car is the basic car has just your standard options. They have roll up windows and basic radio, The full option have electric windows, car alarm, heated seats in some.
Difference between American option and European option?
The only difference between American Options and European Options is that the American Option allows you to exercise the option anytime before and up to expiration while European options only allow you to exercise the option upon expiration. Both options can be freely bought and sold before expiration.
What is the difference between qualified and non qualified stock option plan?
I Dunnno
What are the key differences between a European option and an American option?
The main difference between a European option and an American option is the exercise or strike price. In a European option, the option can only be exercised at the expiration date, while in an American option, the option can be exercised at any time before the expiration date.
What is the difference between pause recording and stop recording option in macros submenu in windows word 2010?
no difference,..
What is the difference between the Arris TM722A and the Arris TM722G modems?
The TM722G has a battery backup option.
What is the difference between fact and option?
A fact and an option are two very different things. A fact is something true a point of information,eg. a statistic. Whilst an option is something that gives us the option to choose, a choice.
What is the difference between an option call and an option put?
An option call gives the holder the right to buy an asset at a specified price, while an option put gives the holder the right to sell an asset at a specified price.
