Short options
What is a Naked Call and why does it carry unlimited theoretical financial risk profile?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A naked call is selling a call option without owning the underlying stock or an offsetting position, exposing the seller to theoretically unlimited losses since a stock's price has no upper bound and the seller must deliver shares at the strike regardless of cost.
How it works
Brokers require significant margin and only approve experienced traders for this strategy because losses can exceed the initial premium collected many times over.
An example
Selling a naked call for $2.00 on a stock that later surges from $50 to $120 could require buying shares at $120 to deliver at the $55 strike, resulting in a large loss far beyond the premium.
Risk & limitations
OCC disclosures explicitly warn that uncovered call writers face theoretically unlimited risk, and most brokerages impose strict approval levels and margin requirements for this strategy.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.