Options Trading Strategies: Short Call
A naked call (uncovered call, short call) options strategy means that a trader sold (wrote) a call option, without owning an underlying security (BTC or ETH).
When to use this strategy?
When you short (sell, write) a call, you expect the underlying security (BTC/ETH price) to fall. Your maximum gain is a premium you’ve received when you sold a call to a buyer. You are also bearish or neutral to IV(Implied Volatility), because a rise in IV increases the ITM (In The Money) probability at expiration, thus increasing your risk of loss.
Below is a Profit and Loss chart example of a naked (short) call options strategy:
![](https://blog.btcoptions.io/wp-content/uploads/2022/02/short_call.png)
Pros:
Your goal is to collect the premium, so your strategy has to expire OTM (Out of The Money), and when played right, it is a good income strategy. Traders mostly choose the strike price high enough to be sure that the option will expire worthless (spot price will be less or equal to the strike price).
Cons:
Even though this strategy is simple to execute, a short/naked call is a risky strategy because you’re exposed to an unlimited loss, if the BTC/ETH price jumps rapidly.
Example:
In this example, BTC is trading at 42,404.72 USD, and you do not expect its price to rise, or you expect its price to fall. You’ve sold a call with a strike price of 42,000.00 USD, an expiration date of February 8th 2022, and for a premium of 754.82 USD.
The Profit and Loss chart looks as at the picture below:
![](https://blog.btcoptions.io/wp-content/uploads/2022/02/ShortCallExp-1-1024x372.png)
Upon expiration:
If the BTC/ETH price (spot price) is below your strike price – you will obtain a maximum profit, which is the premium you have received when you sold the call.
If the spot price exceeds the strike price, the buyer can exercise the option on the seller (You), and at that point you’re starting to make losses.
BTC at Expiry (USD) | Payoff (USD) |
---|---|
42,000.00 (strike price) | +745.82 |
42,056.00 | +698.82 |
42,369.00 | +385.82 |
42,694.00 | +60.82 |
42,745.82 (break even) | 0 |
42,820.00 | -65.18 |
43,001.00 | -246.18 |
43,137.00 | -382.18 |
43,412.00 | -657.18 |