So the real danger in uncovered or naked calls is that you don't sell before the the expiration date when it

Question

goes out of control?

Answer 1

The real danger of any investment, including naked calls, is that you will lose money. This is true if you are talking about a long or short position.

Option prices never go out of control. As you get closer to the expiration date changes in the stock price become more important in determining in-the-money option prices and less important for out-of-the money option prices.

The biggest dangers, in my opinion, come from
(1) trading options without understanding the risks involved
(2) believing you can predict what the future price of a stock will be and not being prepared to adjust your position if you are wrong, and
(3) taking too large a position.

Answer 2

Hate to tell you this but if you don't know, you should prob not do naked short calls.
-you can write or buy call options/ & same w/ put options
-if the stock price on a bought call option goes up you make money however if it goes down significantly you will be trying to sell it but no one's gonna want to buy it.. Imagine YHOO now at 32.10 the March 32.5 is .65 per contract if Yhoo goes down to 24$ a share you will be lucky to get .05 for it. That's a huge loss & the closer you will be to the 3 friday in march, the less you will get, you might want to read up on the black & sholes option pricing model, before you venture out in risky waters.

Answer 3

Two dangers of uncovered calls:
1.The stock does not appreciate enough to recoup the cost/price of the calls
2. The stock does not appreciate in time before the expiry of the option.