If the stock price increases over the exercise price by more than the amount of the premium, the short will lose money, with the potential loss unlimited.

Call option - Wikipedia

I still earn the 10 bucks, so why am I going to have a loss? Even an unlimited loss? Is it about opportunity cost? I think it's unreasonable. You are likely making an assumption that the "Short call" part of the article you refer to isn't making: Rather, selling short a call has two primary cases with considerably different risk profiles. When you short-sell or "write" a call option on a stock, your position can either be:.

Options - Short Call

Writing a covered call can be a relatively conservative trade, while writing a naked call if your broker were to permit such can be extremely risky. With an uncovered position, should you be assigned you will be required to buy the underlying at the prevailing price. This is a very real cost — certainly not an opportunity cost. Look a little further in the article you linked, to the Option strategies section, and you will see the covered call mentioned there.

That's the kind of trade you describe in your example. By posting your answer, you agree to the privacy policy and terms of service. By subscribing, you agree to the privacy policy and terms of service.

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Why does shorting a call option have potential for unlimited loss? Note that in your example, you don't state what you paid for the stock.

Maybe i am not reading correctly, but the option consists of shares of the stock, and you are only buying one share. When you short-sell or "write" a call option on a stock, your position can either be: Nice Answer Chris, I was about to write something completely different, in a foreign language, wrong and opinionated.

Rea Oct 21 '14 at Sign up or log in StackExchange. Sign up using Facebook. Sign up using Email and Password.

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