The writer of a call option does not have the necessary underlying assets. – In the case of options with physical delivery, the risk of loss in this case corresponds to the price difference between the strike price – paid by the buyer of the option – and the price that the writer must pay to obtain the underlying asset. – For cash-settled options, the risk of loss is the difference between the strike price and the price of the underlying asset. – Because the price of the underlying asset can significantly exceed the strike price, the risk of loss for uncovered call options cannot be determined and is theoretically unlimited. Especially in the case of American options, exercise can lead to a very unfavorable, loss-making situation for the writer. If, in addition, physical delivery must be made, then it can become extraordinarily expensive or even impossible to procure the underlying. – See Butterfly Spread, Commodity Forward Contract.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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