7 Minute Read

Options Theory: Naked Calls

April 28, 2022

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Today’s video reviews the basics of the naked call strategy.

Naked Call Notes

Long Call: right to buy shares of stock at the strike price.

                A) Pay a premium = max risk

Short Call: obligated to sell shares of stock at the strike price.

                A) Receive a premium = max reward

I’m getting paid for a promise to sell shares

                A) I already own the shares and I’m a willing seller (covered call)

                B) I’m obligated myself to sell stock that I don’t own. I do this because I believe the call will expire worthless and that I won’t have to make good on my promise.

                C) We are selling calls we believe will expire worthless.

Bias: Neutral to Bearish, cheaper share price, bear pattern

Structure: Sell a short-term (1 to 2 months), OTM


Max Reward = premium received

Max Risk = unlimited

Margin Requirement =similar to the naked put, 20% of stock prices

Ideal ROI: 10%

POP: 1 – delta

Usually we sell a delta of 0.20 or less.


1) Let the call expire worthless

2) Buy back the call when you capture 90% of premium.

                A) sell call for 50 cents, buyback at 5 cents

Stop Loss

1) Exit if stock breaks above resistance

2) Exit if stock reaches the call strike price.

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