Naked Call Options
If you choose to sell or go short a call option, the buyer who purchased from you has the right to exercise the call means he can ask you through exchange to provide the delivery of the shares on the expiration date at the strike price of the call.
This means if you go short by selling call, you are selling the right to buy the underlying instrument at a particular strike price to an option holder. That’s why selling a call option prompts the deposit of a credit in your trading account in the amount of the call's premium, look at this in simple way, when the sellers sells call he must have the credit in his/her account as par with the actual value of the delivery plus the call premium.
For example, Steve sell the $200 March call of 100Shares of xyz co. with premium of $2/Share, he must have the credit equals to $20000 (the delivery value at strike price) + $200 (premium calculated as 100 share at $2 per share) this comes to total as $20200, so while selling call Steve must have the credit in his trading account equals to $20200 to sell a call.
This is a limited profit strategy. You get to keep this credit if the option expires worthless. Thus, to make money on a short call, the price of the underlying asset must stay below the call's strike price. If the price of the underlying asset rises above the short call strike price, it will likely be assigned. This means that the call option seller is required to deliver the option package (usually 100 shares of stock and can be more) at the strike price.
After assignment, the individual will be short those shares unless they already had a long position (means he already have the shares in his account) in the stock. The option seller may need to buy the underlying stock at the current market price after selling it at the call's lower strike price, thereby incurring a loss on the trade (current price - strike price = loss). The maximum loss is therefore unlimited to the upside, which is why selling "naked" or unprotected call options comes with such a high risk.
