What Is the Maximum Loss Potential When Selling an ‘Uncovered’ Call Option?
The maximum loss potential when selling an uncovered (or naked) call option is theoretically unlimited. A call option gives the buyer the right to purchase the underlying asset at the strike price.
If the asset's price rises indefinitely, the seller is obligated to buy the asset at the market price and sell it to the buyer at the lower strike price, resulting in a loss that grows with the asset's price.
Glossar
Maximum Loss Potential
Exposure ⎊ Maximum Loss Potential, within cryptocurrency derivatives, represents the theoretical upper bound of capital at risk for a given position or portfolio, determined by the underlying asset’s price movement and the derivative’s structure.
Loss Potential
Exposure ⎊ Loss Potential within cryptocurrency, options, and derivatives represents the maximum quantifiable decrement to capital given a defined probability of adverse price movement or counterparty default.
Uncovered Call
Risk ⎊ An Uncovered Call represents a short option position where the seller has written a call option without holding the underlying cryptocurrency asset to cover the potential obligation upon exercise.