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Short Call (Naked Call) Vs Short Put Options Trading Strategy Comparison

Compare Short Call (Naked Call) and Short Put options trading strategies. Find similarities and differences between Short Call (Naked Call) and Short Put strategies. Find the best options trading strategy for your trading needs.

Short Call (Naked Call) Vs Short Put

  Short Call (Naked Call) Short Put
Short Call (Naked Call) Logo Short Put Logo
About Strategy Short Call (or Naked Call) strategy involves the selling of the Call Options (or writing call option). In this strategy, a trader is Very Bearish in his market view and expects the price of the underlying asset to go down in near future. This strategy is highly risky with potential for unlimited losses and is generally preferred by experienced traders. The strategy involves taking a single position of selling a Call Option of any type i.e. ITM or OTM. These naked calls are also known as Out-Of-The-Money Naked Call and In-The-Money Naked Call based on the type you choose. This strategy has limited rewards (max profit is premium received) and unlimited loss potential. When the trader goes short on call, the trader sells a call option and e... Read More A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses.
Market View Bearish Bullish
Strategy Level Advance Beginners
Options Type Call Put
Number of Positions 1 1
Risk Profile Unlimited Unlimited
Reward Profile Limited Limited
Breakeven Point Strike Price of Short Call + Premium Received Strike Price - Premium

When and how to use Short Call (Naked Call) and Short Put?

  Short Call (Naked Call) Short Put
When to use?

It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

Market View Bearish

When you are expecting the price of the underlying or its volatility to only moderately increase.

Bullish

When you are expecting the price or volatility of the underlying to increase marginally.

Action
  • Sell Call Option

  • Sell Put Option

A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.

Breakeven Point Strike Price of Short Call + Premium Received

Break even is achieved when the price of the underlying is equal to total of strike price and premium received.

Strike Price - Premium

Compare Risks and Rewards (Short Call (Naked Call) Vs Short Put)

  Short Call (Naked Call) Short Put
Risks Unlimited

There risk is unlimited and depend on how high the price of the underlying moves.

Unlimited

There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.

Rewards Limited

The profit is limited to the premium received.

Limited

The profit is limited to premium received in your account when you sell the Put Option.

Maximum Profit Scenario

When underline asset goes down and option not exercised.

  • Max Profit = Premium Received
  • Max Profit Achieved When Price of Underlying <= Strike Price of Short Call

Underlying doesn't go down and options remain exercised.

Maximum Loss Scenario

When underline asset goes up and option exercised.

  • Maximum Loss = Unlimited
  • Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
  • Loss = Price of Underlying - Strike Price of Short Call - Premium Received

Underlying goes down and options remain exercised.

Pros & Cons or Short Call (Naked Call) and Short Put

  Short Call (Naked Call) Short Put
Advantages

This strategy allows you to profit from falling prices in the underlying asset.

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

Disadvantage

There's unlimited risk on the upside as you are selling Option without holding the underlying.

Rewards are limited to premium received only.

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

Simillar Strategies Covered Put, Covered Calls, Bear Call Spread

Bull Put Spread, Covered Call, Short Straddle








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