The potential loss for a writer of a naked call option on a stock is
A)limited.
B)unlimited.
C)increasing when the stock price is decreasing.
D)equal to the call premium.

Question

The potential loss for a writer of a naked call option on a stock is
A)limited.
B)unlimited.
C)increasing when the stock price is decreasing.
D)equal to the call premium.

Quizplus · Accepted Answer

The potential loss for a writer of a naked call option on a stock is unlimited because the writer has the obligation to sell the underlying stock at the strike price, even if the market price of the stock is higher than the strike price. As the stock price increases, the potential loss also increases. The writer's profit is limited to the premium received from selling the call option.

The Potential Loss for a Writer of a Naked Call