Short Call trading strategy

M

moolah

For the short call strategy, does it assume that the trader does not own the stock when the trade is entered? What is the trading objective for this strategy?
 
So the intended money making opportunity comes from the premium received if the stock stays flat? To make money when the stock drops, the strike price and in this case the SELL price must be higher then the market stock price upon expiry? Great if someone can give examples.
 
moolah said:
So the intended money making opportunity comes from the premium received if the stock stays flat? To make money when the stock drops, the strike price and in this case the SELL price must be higher then the market stock price upon expiry? Great if someone can give examples.
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Short answer is what Pekelo said.

If the stock is at $100, you sell a call with strike price of $100 for 1 week and receive a premium of say $1. if the stock stay at $100 or below at the end of 1 week, you keep the $1 premium. However, if the stock goes to say $110, you will have to buy the stock @ $110 and sell it to the buyer of your option for $100 so you ended up taking a $9 loss. It is a limited gain but unlimited loss trade.

The devil is in the details.

If you are interested, should visit the website mentioned to get educated.
 
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