Which one of the following options would be associated with the MOST risk for the writer if the underlying stock is expected to increase substantially before expiration?
A) a call
B) a put
C) a naked put
D) a naked call

Question

Which one of the following options would be associated with the MOST risk for the writer if the underlying stock is expected to increase substantially before expiration?
A) a call
B) a put
C) a naked put
D) a naked call

Quizplus · Accepted Answer

A naked call involves selling the right to buy the underlying stock at a specific price (the strike price) without actually owning the stock. If the stock price increases substantially, the writer of the naked call could face unlimited losses, since they would be obligated to sell the stock at a lower price than the current market value. The other options (a call, a put, and a naked put) all involve purchasing options, which would limit the writer's risk to the premium paid for the option.

Which One of the Following Options Would Be Associated with the MOST