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Short Naked Call

Analyzing the risk profile of a short naked call

Short Calls Compared To Short Shares

Now, let's compare the risk of short call strategies to that of 100 short shares. In a large rally, both strategies would begin to lose at the same pace. The short call, however, has slightly less total risk because of the credit received at trade entry. That credit, plus any distance between OTM strikes and the current share price, can drastically improve the short call's break-even. The profit potential of the short call may be lower, but the odds of the shares outperforming the call are significantly less than 50%.
Figure 1 Figure 2 Figure 3

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