Selling naked calls is the riskiest thing that you can possibly do as
a trader. It gives you the potential to lose a lot of money if you are
wrong.
When you sell a naked call you sell someone else the right to make you
sell a stock at a certain price sometime before the option expires. It
is tempting because you can realize a large profit from it, but there
are many disadvantages.
1. Infinite loss
Any time you sell a naked call you are risking an infinite amount of
money. Because there is no limit to how far a stock can go up there is
no limit to how much you can possibly lose on the stock. This gives
you too big of a risk to make the trade look good.
Sure you can try to limit the loss by using things such as stop
orders, but if the stock gaps up big 1 day you are still going to lose
a good amount of money. Taking on an infinite amount of risk for a
limited amount of money is not such a good idea.
2. Stocks Go up in the long term
It has been proven time and time again, in the long term stocks do
gradually go up. If you are forced into shorting the stock you cannot
just wait for the long term and hope that you will eventually make it
back. That would only be waiting around for your loss to get bigger
and bigger over time.
3. Always a Second Option
Anytime you sell a call you can always limit your risk by backing the
call with something else such another call with a higher strike price
or the stock itself. With this option there is really never a need to
sell a naked call.

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