5 Questions
What is the main difference between a covered option and a naked option?
The writer holds the underlying shares for a covered option, but not for a naked option
What risk does the writer of a naked call option face if the price of the underlying security increases?
Potentially unlimited losses
Why is writing naked options considered particularly risky?
It exposes the writer to potentially unlimited losses
What could be disastrous for the writer of a naked call option?
An unexpected positive announcement that significantly increases the share price
What does the potential loss incurred by the writer of an option contract extend beyond?
The amount of the premium received
Test your knowledge of options trading with this quiz on covered and naked options. Learn about the differences between the two types of options and the risks involved in writing naked options. Perfect for anyone looking to understand the ins and outs of options trading.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
