back

root strategies

Short Naked Call

Analyzing the risk profile of a short naked call
What happens to your short call if IV expands without any price change?
It will lose money
Correct! Short options, such as a short call, carry negative vega. This means they profit when implied volatility contracts, and lose money when volatility expands.
It will profit
This answer is incorrect. Please try again.
Nothing
This answer is incorrect. Please try again.
It will expire worthless
This answer is incorrect. Please try again.
You sell a 50∆ call for $1.50. The share price is $50. What is your maximum profit?
$50
This answer is incorrect. Please try again.
$100
This answer is incorrect. Please try again.
$150
Correct! Regardless of share price, the maximum potential profit for any short option is the amount you sell it for. In this case you sold a call for $1.50 ($1.50 × 100 shares = $150).
$200
This answer is incorrect. Please try again.
XYZ is trading for $50. You sell the 51 call for $1.00. How much intrinsic value have you sold?
$100
This answer is incorrect. Please try again.
$50
This answer is incorrect. Please try again.
$1.00
This answer is incorrect. Please try again.
$0
Correct! This call is completely OTM, so it is made up of purely extrinsic value.
Short options carry negative gamma. What does this mean?
As the share price rises, delta will decrease
This answer is incorrect. Please try again.
As the position profits, delta will decrease
This answer is incorrect. Please try again.
As the position loses, delta will increase
This answer is incorrect. Please try again.
All of the above
Correct! All of these are true about negative gamma. It means that delta will decrease (or become more negative) as share price rises. Delta shrinks into profit, and grows into loss.
If you are assigned on a short call, what will that mean?
You must buy 100 shares at the strike price
This answer is incorrect. Please try again.
You have the option to buy 100 shares at the strike price
This answer is incorrect. Please try again.
You must sell 100 shares at the strike price
Correct! If you are assigned on a short call, it means you are obligated to sell 100 shares at the strike price. If you do not already own the shares, you will end up with short shares.
You have the option to sell 100 shares at the strike price
This answer is incorrect. Please try again.

back

root strategies
Open a Tastyworks Brokerage Account