The potential loss for a writer of a naked call option on a stock is
A)limited.
B)unlimited.
C)larger the lower the stock price.
D)equal to the call premium.
E)None of the options

Question

The potential loss for a writer of a naked call option on a stock is
A)limited.
B)unlimited.
C)larger the lower the stock price.
D)equal to the call premium.
E)None of the options

Quizplus · Accepted Answer

If the buyer of the option elects to exercise the option and buy the stock at the exercise price, the seller of the option must go into the open market and buy the stock (in order to sell the stock to the buyer of the contract) at the current market price.Theoretically, the market price of a stock is unlimited; thus the writer's potential loss is unlimited.

The Potential Loss for a Writer of a Naked Call