A naked call is a strategy in which the writer sometimes, writes the call options on the open market and they didn’t own any underlying security. It is also known as an uncovered call or short call. In this call option, a writer doesn’t own the corresponding number of shares or has not deposited in cash amount. A naked cal is the opposite of the covered call.
Description of Naked Call
The person who is the seller of the naked call has no options and he has to buy the stocks at the open market in order to deliver his stuff on strike price.
A naked call is a strategy in which the writer has the right to write some call options on the open market and it has a correct contrast with the covered call option. They both run parallel to each other. The naked call option can be risky and can be gaining as well depends on the stock market
There are many risks in selling the naked call option and they are:
1- If the price of the stock goes up it has unlimited risks in it.
2- One of the risks of this call option is that it has limited upside [potential and unlimited downside potential.