Chapter 02 · Section 2.1
Risk- Short Calls
Nick holds a short September 40 call on IBM. What is the risk he has?
b) With an decrease in the price of the underlying the potential loss is unlimited.
No. Nick is the writer of the call, he received the premium for which he has an obligation. If the price of the underlying stock (IBM) increases, the buyer of the call will exercise his rights.
a) With an increase in the price of the underlying the potential loss is unlimited.
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