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Naked and Covered Position


  • If a trader sells call contracts standalone, he has a naked position exposure
  • He will gain from the premium received if the price of the underlying falls and the option is not exercised
  • Potential for unlimited loss in case stock prices rise and the trader has to cover his short position
  • If a trader sells call contract and has equivalent long position in the underlying he has cover
  • He will gain if the stock price rises and the option is exercised
  • Potential for large losses in case there is a rapid decline in the stock price


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