Speculative Investors and Options Trading

A speculator profits either by selling an option that has risen in value or by exercising it and selling the underlying. The position that separates speculation from everything else in this chapter is the naked write: a naked call is a call sold without owning the stock, and a naked put is a put sold without the cash to take the shares if assigned. Both carry losses the premium does not begin to cover — the naked call’s is unbounded — which is why every retirement custodian forbids the first and why this chapter keeps returning to the strangle-writer who learns it the expensive way.