What is an uncovered call option?

In options trading, an uncovered option refers to a call or put option that is sold without having a position in the underlying stock. An uncovered option can also be referred to as a naked option.

What is a covered call vs uncovered call?

An investor in a naked call position believes that the underlying asset will be neutral to bearish in the short term. A covered call provides downside protection on the stock and generates income for the investor.

What happens when you sell an uncovered call?

When selling a naked call, you instruct the broker to “sell to open” a call position. Since you do not have an underlying position, you will be forced to buy the security at the market price and sell at the strike price if those calls go in-the-money.

Is it riskier to write covered or uncovered call options?

This can be true for put or call options. An uncovered or naked put strategy is inherently risky because of the limited upside profit potential, and at the same time holding a significant downside loss potential, theoretically.

What is a naked or uncovered option?

A naked or uncovered option is a call (or put) written without the offsetting shares (or funds) necessary to fulfill the terms of the contract should it be exercised by its buyer.

Can you buy an uncovered call?

The call options contracts provide buyers with flexibility and the ability to secure a stock price. On the other hand, people sell call options contracts for a premium to make money. The options can be sold as covered call or uncovered call.

Can you lose money on covered calls?

There are two risks to the covered call strategy. The real risk of losing money if the stock price declines below the breakeven point. The breakeven point is the purchase price of the stock minus the option premium received. As with any strategy that involves stock ownership, there is substantial risk.

Are uncovered puts risky?

An uncovered or naked put strategy is inherently risky because of the limited upside profit potential, and at the same time holding a significant downside loss potential, theoretically.

What happens if a covered call expires in the money?

If it expires OTM, you keep the stock and maybe sell another call in a further-out expiration. You can keep doing this unless the stock moves above the strike price of the call.