Question about naked options (stock options people)?

[Golgatha]

So I'm interested in stock options. A covered call is when I own enough shares of the stock for the contract I'm writting. Now if I buy a naked call and then sell the naked call, I no longer own the contract correct? Essentially I have sold the contract to someone else to do with as they please? Or, when I sell the naked call can the buyer exercise the option strike price and I'm out money after I collection my gain on the option premium.

This is so very confusing. Thanks for any help you can offer in advance.

 

[vi edit]

There's three ways out of a "long" position.

Sell to close, exercise or expire worthless. *Most* will either sell to close or expire worthless. Very few are actually exercised.

You are confusing long and short positions.

You can buy to open.
Sell to open.

When you buy you are long. When you are long you reserve the right to call away shares from others if you choose to exercise.

When you sell you are short. You can only be "naked" on short positions. When you are short, you are obligated to buy shares from someone else if you are exercised.

You only collect premiums on short positions.
You pay a premium to buy a long position.

 

[Golgatha]

Originally posted by: vi_edit
There's three ways out of a "long" position.

Sell to close, exercise or expire worthless. *Most* will either sell to close or expire worthless. Very few are actually exercised.

You are confusing long and short positions.

You can buy to open.
Sell to open.

When you buy you are long. When you are long you reserve the right to call away shares from others if you choose to exercise.

When you sell you are short. You can only be "naked" on short positions. When you are short, you are obligated to buy shares from someone else if you are exercised.

You only collect premiums on short positions.
You pay a premium to buy a long position.

Ok, so if I buy to open and then sell to open for a profit on the premium, then the only way I could lose money is if the buyer exercised the option before the call date?

 

[Golgatha]

Oh wait, so sell to open is a position from which you're naked then. If you sell to close, then you're not naked and have essentially divested yourself from the contract?

 

[vi edit]

If you buy to open, and then sell to close, the deal is done. Over. Complete. If you make money off the closing sell, good for you. If you lose money, better luck next time.

There is no further action that can be made once you close out a position.

You are confusing "sell to close" with "sell to open".

The only time you "collect" a premium is when your initial position is a "sell to open".

The way you lose money in a "buy to open" position is if it expires worthless (below your strike price), or just enough above strike that the exercise fees and/or commilsions eat away any profits.

But you are never out more than premium + fees in a "buy to open"(long) option position.

 

[Eeezee]

You can either wear clothes or not wear clothes?