Short Call
A short call is written by selling a call option. The writer collects premium upfront and accepts the obligation to sell the underlying at strike if the holder exercises. Maximum profit equals and is achieved when . A naked short call has unlimited loss potential, since can rise without bound. The position is bearish to neutral and expresses a view that the stock will not rally past .
Try it yourself
Pick one position and watch its expiry profile across the underlying price ST. The dashed line is gross payoff; the solid line is profit after premium.
Why it matters
Writing a call is selling lottery tickets. You pocket the premium hoping the option expires worthless. If the stock stays flat or drifts down, you keep the entire premium. If the stock rockets, you must deliver shares at the strike and lose the upside above it. This is why naked call writing is restricted to margin-approved accounts on ASX Clear. The risk profile is the mirror image of a long call, with capped gain and uncapped loss.
A naked short call has:
Formulas
Worked examples
Write a 1-month call on Westpac with $25 at premium $0.50. At expiry $24.
Payoff $0. Profit $0.50 per share. The writer keeps the full premium because the call expired worthless. On an ASX contract of 100 shares that is $50 of profit.
Same trade, but Westpac is taken over and jumps to $35 at expiry.
Payoff $10. Profit $9.50 per share. The naked writer has to deliver shares worth $35 at the strike of $25, taking a $10 loss per share before counting the $0.50 premium. On 100 shares the loss is $950, illustrating why uncovered call writing carries open-ended downside.
Common mistakes
- ✗Writing calls is easy money. Naked short calls have unlimited loss potential. A single takeover bid or short squeeze can wipe out years of premium income.
- ✗A covered call is risk-free. A covered call replaces unlimited downside with a cap on upside, but the long stock still suffers any market fall. The position is a synthetic short put, with the same risk shape.
- ✗The short call profits as long as the stock stays below the strike. Profit holds only up to on a mark-to-market basis at expiry. Before expiry, an implied-vol spike can push the option price above the entry premium even with no stock-price change, generating an unrealised loss.
Revision bullets
- •Sell a call to collect premium
- •Max gain when
- •Max loss is unlimited for a naked call
- •Break-even at
- •Requires margin posted with ASX Clear
Quick check
A naked short call has:
Write a call with $50 for $3. The stock closes at $60. Profit per share is:
Connected topics
More in Options
In learning paths
Sources
- Hull, John C. Options, Futures, and Other Derivatives. 11th ed. Pearson, 2022. ISBN 978-0-13-693997-9.Standard textbook treatment of the short call position, profit profile, and the asymmetry with long calls.
- McMillan, Lawrence G. Options as a Strategic Investment. 5th ed. Prentice Hall Press, 2012. ISBN 978-0-7352-0466-2.Strategy reference on naked and covered call writing, including margin treatment and risk management.
- ASX Clear. Margin Methodology for Equity Options. ASX, accessed 2026.Local reference on how ASX Clear calculates initial and variation margin on written option positions including naked calls.
- Options Industry Council. Strategy Guide: Short (Naked) Call. Options Education, accessed 2026.Industry strategy guide with profit and loss diagrams for the uncovered short call and explicit max loss warning.