Asked by JORDAN ESCOBAR on Apr 25, 2024
Verified
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.
E) None of the options are correct.
Naked Call Option
An options strategy where an investor sells call options without owning the underlying asset, exposing the seller to unlimited risk.
Potential Loss
Refers to the possible financial loss or damage that might arise from a risk or unfavorable event.
- Comprehend the possible ramifications and risks linked to engaging in option writing.
Verified Answer
MT
Minnie Tipton6 days ago
Final Answer :
B
Explanation :
The potential loss for a writer (seller) of a naked call option is unlimited because if the stock price rises significantly, the seller has to provide the stock at the strike price, which could be much lower than the market price, leading to potentially unlimited losses.
Learning Objectives
- Comprehend the possible ramifications and risks linked to engaging in option writing.