Question

7. How is an option short sale different from a stock short sale?
8. What is the rationale for naked calls and naked puts?
9. What is the highest potential gain/loss for a naked call?
10. What is the highest potential gain/loss for a naked put? 11. What are a breakeven price and range?
12. How does the breakeven range relate to the maximum gain from the naked options?

Answer 1

7. Option short selling is different because in option short selling one have to buy the put option in order to you have a down side view on the stock. Put option provide with option to a share holder to sell a certain number of shares in the market. It is a type of derivative which is highly cheap and best people who wants to take high risk opts for option. it is associated with implied volatility and premium.

While shorting a stock means shorting the stock into the cash Market or futures market by just going short over it.shorting stock means having bearish view on the stock but it only gives the option to short it.there are no concept of implied volatility and premium and time value of stock futures.