What Is the Difference between a Covered Call and a Naked Call?
A covered call is an option strategy where the seller (writer) of the call option owns the equivalent amount of the underlying asset. This ownership "covers" the obligation to deliver the asset if the option is exercised.
A naked call is a strategy where the seller of the call option does not own the underlying asset. This exposes the seller to theoretically unlimited loss if the asset's price rises sharply, making it a high-risk strategy.
Glossar
Covered Call
Strategy ⎊ This involves selling a call option on an asset that the investor already owns, thereby generating immediate income against potential appreciation.
Call Option
Entitlement ⎊ The core of a call option within cryptocurrency derivatives represents a contractual right, but not an obligation, to purchase a specified digital asset at a predetermined price, known as the strike price, on or before a specific expiration date.
Naked Call
Exposure ⎊ This strategy involves selling a call option without holding the corresponding amount of the underlying cryptocurrency to cover the potential obligation.