Products & RisksQuestion 30 of 125
An investor writes (sells) 1 uncovered XYZ call with a 50 strike for a premium of 3. The maximum potential loss is:
a.Limited to $300
b.Unlimited
c.Limited to $5,000
d.Limited to $4,700
Explanation
An uncovered (naked) call writer faces theoretically unlimited loss because there is no ceiling on how high the underlying stock can rise, and the writer must deliver shares at the strike no matter the market price. The premium received only partially offsets this exposure.
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