Discussion in 'Options' started by tradingjournals, Jan 7, 2013.
Which do you think involves more risk: short OTM naked call or covered call?
heres a similar and just as ambiguous question... Do you buy Teenies or sell teenies.
Sorry, I didn't understand the answer.
Can you come up with a clearer one pls?
Draw the payout graphs (P&L vs stock price) and you can compare the pros and cons for yourself.
Writing a call option by itself will give you unlimited losses on the downside if the stock price keeps rising. Adding a stock to make it a covered call will limit your loss to the stock value minus option value if the stock price goes down to zero, which is still pretty bad.
If you want to control your risk, try going for call spreads. I'm personally trying to backtest writing naked calls which are very close to expiration, with automated stop-loss triggers for safety.
Could you rephrase the question?
Yes, your right.
But assuming that the stock will go to zero is risky with stocks in general.
I thought he refered to the Options, If trading naked options or adding them to the asset.
The Eurodollar (GE) call is far less risky.
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