Disclaimer
Analysis Techniques & Strategies
Selling a Call represents a short Call, which is a slightly bearish or neutral position. This strategy entails writing (selling) the Call option with an obligation to sell a fixed number or amount of the underlying asset to the holder at a fixed price on or before a specific period of time upon exercise. The trader or investor who executes this strategy is called the writer. The two types of Call writing include: Covered Call writing, where you own 100 shares of the underlying stock for each Call that you are writing; and Naked Call writing, where you do not own the underlying asset. The risk inherent of Naked Call writing can be extremely high and always carries margin requirements.
The reward in this strategy is limited to the premium received for selling the Call option. The risk is unlimited. Calls - Sell is used if you are bearish on the underlying asset, and is used basically to collect the premium when a trader or investor feels strongly that the Call option contract will expire worthless, or will be worth less than the premium received.
Here is an example of this option strategy:
Short 1 XYZ OCT 55 Call $6.00 you sell ($ money in)
| Risk Factor | Effect |
| Price Sensitivity [Delta] | Position increases in value to the maximum gain amount |
| Time Decay [Theta] | Position benefits from the passage of time |
| Volatility Sensitivity [Vega] | Position benefits by a decrease in volatility |
Maximum gain is limited to the amount of option premium collected; maximum loss is unlimited