Uncovered (Naked) Option Writing
Chapters in this video
- 0:00 The uncovered options minefield and survival map
- 0:54 Naked calls and unlimited upside loss
- 2:32 Naked puts and the zero floor
- 3:26 Ratio call writes hiding a naked call
- 4:27 Index options, cash settlement, and European style
- 5:24 Yield-based calls and the TYX decimal trick
- 6:54 Rapid-fire exam recap
What this video covers
- Why uncovered (naked) call writing is the single highest-risk options strategy, with unlimited loss potential as the stock rises
- The breakeven formula for a naked call (Strike plus Premium) and the margin account requirement behind it
- Why uncovered put writing has LIMITED risk capped at Strike minus Premium, since a stock can only fall to zero
- How a 1:2 ratio call write hides an uncovered call inside a covered position, and why the upside risk is still unlimited
- How broad-based index options cash settle using the $100 multiplier, and why European-style exercise does not reduce the writer's risk
- Why yield-based calls on instruments like the 30-year Treasury Yield Index (TYX) profit when rates rise, and how to read a strike like TYX 35 as a 3.5% yield
- Which uncovered strategy a rep should recommend to hedge a bond portfolio against rising rates
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