Ignoring the premium, the maximum loss from writing a call option is:
A) the strike price.
B) the stock price.
C) unlimited.
D) the option price.
E) Insufficient information.

Question

Quizplus · Accepted Answer

When a call option is written, the seller has the obligation to sell the underlying asset to the buyer of the option at the strike price, if the buyer chooses to exercise the option. As the price of the underlying asset rises, the seller's losses increase since they are obligated to sell at the lower strike price. There is no limit to how high the stock price can go, which means that the seller's losses can be unlimited. Therefore, the maximum loss from writing a call option is unlimited.

Ignoring the Premium, the Maximum Loss from Writing a Call