Naked Calls have had a bad reputation for decades. Most of the time investors, financial planners and brokers have attacked Naked Calls as too risky when in fact naked calls are in many ways less risky than naked puts and some option traders will argue that naked calls are among the best of option strategies in bull and bear markets depending on your goal and outlook for a stock.
Twice recently I have sold naked calls on Barrick Gold Stock and both times I have received a flood of emails from investors “worried” about the “severe risk” of naked calls, as some investors put it. I know that when I was first introduced to selling naked calls I was worried as well and thought the risk was too much to warrant selling naked calls. After my mentor began to show me the value of naked calls I changed my mind. Today I use them often and indeed in some ways I agree they have a special place within the tool chest of stock and option investors.
Naked Puts and Naked Calls
Just like naked puts, naked calls have their value and just like naked puts, naked calls have their risks. But in some ways naked calls are indeed perhaps less risky than naked puts. It is understanding how to manage the risk of both naked puts and naked calls that makes it easy to use either strategy.
In the chart below you can see that on April 15 2013 with Barrick Gold Stock falling I sold naked calls on the stock at the $23 call strike. On Friday April 26 2013 with the stock trending sideways I sold more naked calls on Barrick Gold Stock at the $22 call strike.
Let’s take a look at my recent Barrick Gold Stock Naked Calls to understand the power and the risk of selling naked calls on stocks.
Naked Calls Strategy Article
This is a FullyInformed Members Option Strategy Article. It is 11 pages in length with 2900 words. This strategy article looking at Naked Calls can be directly accessed through this link or Members can login to the full site here. Non-members can join here.