Quote:
Originally Posted by lewdog
I think the light bulb finally clicked fully today. Thanks!
So naked call writing is so dangerous because you own nothing to start. If you placed a strike on X at let's say $32, but the stock actually hits $40, you'd have to go and purchase the stock at $40 on the open market and sell it for $32 right? Thus taking a huge hit because your gains/losses cannot be capped like a covered call on stocks you actually own?
|
Naked calls are great until the stock goes through your strike. Now the conundrum, if you have 2 weeks left on the option and the stock is above your strike, do you cover or do you wait as long as you can so the time value of your option shrinks possibly allowing you to cover for less? If the stock doesn't keep going up that is.