Although the potential loss incurred from purchasing a call option is finite, the potential loss to...

Although the potential loss incurred from purchasing a call option is finite, the potential loss to the seller is unbounded. Explain why the potential loss that the seller may incur is unbounded.

Expert Solution

A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option.The buyer of the call option has the right, but not the obligation, to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price).

the potential loss that the seller may incur is unbounded because buyer has fix the strike price in advance so if the price gone up by strike price it gave loss to the seller and this price is gone by any amount.

ekkarill92 answered 1 year ago

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