Intermediate 5 Quiz
Selling options naked is a strategy that new traders should jump right into?
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?
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?
When you sell call options naked, your max loss is infinity because stocks can continue to trade higher without any limits.