Which one of the following applies to a naked call?
A)unlimited potential profits
B)unlimited potential losses
C)sale of a put on a stock you do not own
D)sale of a call on a stock you currently own
E)purchase of a call on a stock you do not own

Question

Which one of the following applies to a naked call?
A)unlimited potential profits
B)unlimited potential losses
C)sale of a put on a stock you do not own
D)sale of a call on a stock you currently own
E)purchase of a call on a stock you do not own

Quizplus · Accepted Answer

A naked call involves selling a call option without owning the underlying asset. This means that if the price of the underlying asset rises significantly, the seller of this call option will be required to deliver the asset to the buyer at the specified exercise price. As there is no limit to how high the price of the asset may rise, the seller faces unlimited potential losses if they are not able to purchase the stock at a lower price to fulfill their obligation.

Which One of the Following Applies to a Naked Call