Short call (naked)
Sell a call without owning the underlying. You collect premium up front. Profit is capped at the premium, but losses are unlimited if the stock rallies.
How a short call (naked) works
Selling a call you do not own shares against — a naked call — collects a premium in exchange for an open-ended obligation. If the buyer exercises, you must deliver 100 shares at the strike, buying them at whatever the market price happens to be. There is no ceiling on that price, so there is no ceiling on the loss.
This is the one position on this site where the risk is genuinely unlimited, and it deserves plain language: the maximum profit is the premium you collected, and the maximum loss is unbounded. A stock that doubles overnight on a takeover bid turns a $200 credit into a five-figure loss. Brokers require significant margin for exactly this reason, and many retail accounts are not permitted to place the trade at all.
The position profits from time decay and from the stock going nowhere or falling. It is a bet against movement above your strike, and its profit is fixed the moment you open it while the loss is not.
A worked example
XYZ trades at $100. You sell one naked $105 call expiring in 30 days and collect $2.00 per share. You own no shares.
A $200 maximum gain sits opposite a loss with no defined worst case. Adding a long call further out — turning this into a bear call spread — caps that tail for a fraction of the credit, and is what most traders should be doing instead.
When a short call (naked) fits — and when it doesn't
- You have the account permissions, the margin, and the experience for undefined-risk positions.
- Implied volatility is elevated and you expect it to contract.
- You have a hard risk plan — a buy-stop, an alert, or a defined point at which you buy the wing.
- Almost always, if a bear call spread would express the same view. The capped version costs a little credit and removes the tail.
- Any earnings report, trial result, or acquisition rumour sits inside the expiry.
- The underlying is a low-float or heavily shorted name capable of moving many multiples in days.
Common questions
Done planning? Log the trade.
Sutekka journals every leg automatically — and shows you the actual P&L when you close it. Free forever.
Start logging — free