Uncovered Call definition

Uncovered Call refers to writing Call option without owning underlying security - a very speculative investment.

For example, say in March ABCD stock is trading at $20. You do not own ABCD stock, but you sell a Uncovered Call option to sell ABCD for $30 that expires in June. You get $1 when you sell this contract.

If between when you sell the contract and the June expiration ABCD never trades above $30, then you just made a $1 and you don't owe anything.

If ABCD is trading at $60 in May, then you just lost $30. You have an obligation to sell ABCD for $30, but you have to buy it on the open market for $60.

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