Close Navigation
Learn more about IBKR accounts

Naked Call

Trading Term

A naked call, also known as an uncovered call, is an advanced options strategy in which an investor sells a call option without owning the underlying asset. This strategy generates income from the premium received, but it carries substantial risk because the seller may be required to deliver the asset at the strike price if the option is exercised and the market price has risen above it.

The profit in a naked call is limited to the premium received, while potential losses are theoretically unlimited if the underlying asset’s price continues to rise. Because of this asymmetrical risk-reward profile, brokers typically require higher margin and approval levels for traders engaging in naked call writing. This strategy is generally reserved for sophisticated investors with a strong understanding of volatility and disciplined risk management practices.

Naked calls can be used to express a bearish outlook or as part of a broader strategy, such as in a ratio spread. However, due to the open-ended risk, many traders prefer alternatives such as covered calls or vertical spreads, which cap losses while still generating income. Monitoring price movements, news events, and implied volatility is crucial when managing naked call positions, as unfavorable moves can result in rapid and large losses.

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.