Short Call

Short call: sellers of call options collect the premium and are obliged when the call is exercised to buy the stock at the current price and then resell it to the buyer at the strike price. One doesn’t have to own the stock to sell the call – it’s just selling an uncovered call.

If the spot price exceeds the strike one, the buyer may exercise his option on the seller and the latter starts making losses as the spot price increases. The higher the spot price, the more losses the seller suffers.

Call Short

If someone sells the put option for the price of $20 when the strike is $100, and the spot price starts rising, the call option is in-the-money when the break-even point is reached ($120). And the buyer may exercise his contract that causes losses for the seller that can be unlimited. At the same time the profit is the highest when the asset price is lower than $100 (the strike price) and it’s always limited to the premium.

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