Series 7 practice questioneasyOptions — Uncovered Call Writing
What is the maximum loss for a writer of an uncovered (naked) call option?
- ATheoretically unlimited✓ Correct answer
- BThe strike price
- CThe premium received
- DThe strike price minus the premium received
Explanation
Why A — Theoretically unlimited
An uncovered call writer has theoretically unlimited loss potential because the stock price can rise indefinitely. If the option is exercised, the writer must purchase the stock at market price and deliver it at the strike price. This is considered the riskiest options strategy.
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