Which of the following has the potential for the greatest loss?
A) Naked calls.
B) Protective puts.
C) Covered calls.
D) Straddles.
E) Naked puts.

Question

Which of the following has the potential for the greatest loss?
A) Naked calls.
B) Protective puts.
C) Covered calls.
D) Straddles.
E) Naked puts.

Quizplus · Accepted Answer

Naked calls have unlimited potential for loss as the seller of the call option is obligated to sell the underlying asset at the strike price regardless of how high the market price goes. Therefore, if the market price rises significantly, the potential loss for the seller of the naked call option can be very large. The other options listed (protective puts, covered calls, straddles, and naked puts) all have limited potential for loss.

Which of the Following Has the Potential for the Greatest