A customer owns 100 shares of ABC stock in a margin account, valued at $40 per share. The customer sells 3 ABC Jul 40 Calls @ $4. The maximum potential loss is:

Question

Physics

Linnea

2 February, 04:10

A customer owns 100 shares of ABC stock in a margin account, valued at $40 per share. The customer sells 3 ABC Jul 40 Calls @ $4. The maximum potential loss is:

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Answers (1)

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Alejandro Lam · Answer 1

The maximum potential loss is unlimited

Explanation:

The main reason behind this answer is:

The short calls are covered by the long stock position, however the remaining two short calls are naked. so the maximum potential on short naked calls is unlimited.