Quote:
Originally Posted by scho63
You nailed it! You are correct
If a stock goes nowhere and you keep writing calls that expire, you keep collecting the premium until the option expires. You will only be allowed to write calls on covered positions. Most brokerage firms don't allow naked call writing for individual investors.
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I think the light bulb finally clicked fully today. Thanks!
So naked call writing is so dangerous because you own nothing to start. If you placed a strike on X at let's say $32, but the stock actually hits $40, you'd have to go and purchase the stock at $40 on the open market and sell it for $32 right? Thus taking a huge hit because your gains/losses cannot be capped like a covered call on stocks you actually own?