The seller of a naked call is betting that the price of the underlying asset will:
A)decrease.
B)increase.
C)decrease and then increase prior to the expiration date.
D)will remain constant for a period of time and then increase prior to the expiration date.
E)have no effect on the value of the call.

Question

The seller of a naked call is betting that the price of the underlying asset will:
A)decrease.
B)increase.
C)decrease and then increase prior to the expiration date.
D)will remain constant for a period of time and then increase prior to the expiration date.
E)have no effect on the value of the call.

Quizplus · Accepted Answer

A naked call is the sale of a call option without owning the underlying asset. The seller earns a premium but is exposed to potentially unlimited losses if the underlying asset price increases. Therefore, the seller of a naked call is betting that the price of the underlying asset will decrease.

The Seller of a Naked Call Is Betting That the Price