Podcast
Play an AI-generated podcast conversation about this lesson
Download our mobile app to listen on the go
Get App
Questions and Answers
What is the main difference between a covered option and a naked option?
What is the main difference between a covered option and a naked option?
- The writer is liable for daily margin payments for a naked option, but not for a covered option
- The writer holds the underlying shares for a naked option, but not for a covered option
- The writer pays a margin for a covered option, but not for a naked option
- The writer holds the underlying shares for a covered option, but not for a naked option (correct)
What risk does the writer of a naked call option face if the price of the underlying security increases?
What risk does the writer of a naked call option face if the price of the underlying security increases?
- No risk as long as the option contract is open
- Limited losses equal to the premium received
- Margin payments equal to the increase in share price
- Potentially unlimited losses (correct)
Why is writing naked options considered particularly risky?
Why is writing naked options considered particularly risky?
- It exposes the writer to potentially unlimited losses (correct)
- It is only suitable for experienced traders
- It limits the potential profits for the writer
- It requires higher margin payments
What could be disastrous for the writer of a naked call option?
What could be disastrous for the writer of a naked call option?
Signup and view all the answers
What does the potential loss incurred by the writer of an option contract extend beyond?
What does the potential loss incurred by the writer of an option contract extend beyond?
Signup and view all the answers
Flashcards are hidden until you start studying
