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The information on this web site is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Trading in stocks and options involves risk. You can lose money. You should always seek professional advice from your stock broker. We are not stockbrokers and do not make recommendations to buy or sell any stock or option. We provide educational information for your evaluation.

Return to Option Strategies

Writing Naked Call Options, it means to agree ( Obligated) to have available to the buyer of the Call Option a stock that we do not own!

This is a high reward and also high risk strategy.

There is allot more risk writing naked options in the money.

The object of this strategy is to receive premium from writing a naked call option, without actually owning the stock.

We write naked calls when we expect a stock to drop in value.

Example: Stock XYZ is trading at 56.00 and based on its history or pattern we believe the stock is headed down to $45.00. We would Write a Naked Call of 60.00 strike price and receive 3.00.

As, stock XYZ loses value and trades down to the $45.00 level by expiration date, the premium of $3.00 which we received of 3.00 loses it's value, looking at the Theta of the option we could estimate the option premium depreciation, a Theta of .05 means that option would decrease in value by 5 cents a day.

The risk comes in when the stock does not drop in value and gains ground to the up side.

(The worst scenery is when they gap up strong).

Several things we can do:

• Buy to close, the position we wrote, depending on time we may still make some money or we will have to pay more money for that position then we receive.
• If stock XYZ had a bullish reversal we could conceder buying the stock before it reaches the 60.00 level, (this would become now a Covered Call) and make a few dollars on the Stock XYZ and keep all the Premium.
• Note; Write Naked Calls only on bearish stocks that are in a down trend.