Intermediate 5 Quiz
Selling options naked is a strategy that new traders should jump right into?
1. True
2. False
Selling options naked means without any type of hedge, so no stock or no back-end long position. This is a strategy that most option traders don’t go into, even many experienced ones. This strategy is especially not recommended for new traders.
If you sell 3 60-strike price call option contracts for $0.75 per contact, what is your max profit on the trade?
1. $75
2. $150
3. $225
3 option contacts controls 300 shares, at $0.75 per share, your max profit is (300x.75) = $225
If you sell 3 60-strike price call option contracts for $0.75 per contact, what is your max loss on the trade?
1. $225
2. $675
3. Infinity
When you sell call options naked, your max loss is infinity because stocks can continue to trade higher without any limits.