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  • Selling Short Calls
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  • Why sell Options

Selling Short SPY Options Calls.

Selling SPY uncovered call options means giving someone else the right to purchase SPY stock shares at a given strike price. SPY option sellers have obligations, but they are rewarded for these obligations with SPY option premiums which they receive for the sale of the SPY call options. If the previously sold SPY expire worthless, the SPY option seller will have no any further obligations and will pocket all the premiums received for a profit.

Traders that sell SPY call options believe the SPY will decline:

• If the price of the SPY remains below the SPY call's strike price at expiration, the option seller will make a profit on the short call transaction. Yet, the option seller's profit is limited to the premiums received;

• At options expiration date, if the price of the SPY stock is above the short call's strike price, the option holder may choose to exercise the right to purchase the stocks at the strike price. In this case, the option seller must sell the SPYstocks at the call's strike price. Because an uncovered short call was sold, the option seller is now required to purchase the SPY shares at its current market price and deliver these shares to the option buyer at the strike price.
  
  If the market price is greatly above the option's strike price, the option seller will incur a big loss. This is the reason why selling uncovered call options is associated with a high degree of risk - there is no limit as to how high an underlying security may go - respectfully there is no limit how huge the loss could be (in theory, in reality, the loss is limited by margin requirements and you cannot lose more than you have - the sae as with buying options).

Uncovered call options trading can provide extra profit in flat to falling markets.