Calculate short call and short put obligations and loss exposure

Identifier: C4T1L3 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Calculate writer losses across market states. 2. Distinguish collateral from maximum loss. 3. Budget physical-assignment funding.

Prerequisite: C4T1L2.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

A short option creates an obligation, not an option for the seller to refuse payment. Opening a short call and closing a long call are different instructions. The writer receives premium but may have to post collateral before receiving usable cash. A naked call has no offsetting underlying holding; a naked put has no reserved assignment cash. Clearing reduces bilateral credit exposure but does not cancel market losses, gap risk or the intermediary’s right to demand additional collateral.

Price and return drivers

Short call profit = premium − max(S − K, 0); short put profit = premium − max(K − S, 0), then multiply and deduct costs. For a nonnegative share price, a short put’s loss is bounded by strike less premium, plus costs. Its large finite loss is not the same as a small risk. The naked short call loss increases without an upper bound as S rises. A collateral deposit is security for these obligations; it is not an insurance premium or loss cap.

Worked case

Compare one synthetic short call K100 receiving 6 with one separate short put K100 receiving 5, multiplier 100 and TRY 20 charges each.

The short put’s maximum loss is TRY 9520 at S0. The short call loses TRY 4420 at S150 and a still greater amount at a higher S. The maximum gains are only TRY 580 and TRY 480.

Adverse case

Suppose the call writer initially posts hypothetical collateral TRY 2000. A jump to S150 at expiry produces TRY 4420 net loss, exceeding that collateral by TRY 2420. This is not a forecast of a real margin model. At S80, S100 and S150 the distinct exposures in the table remain. Before expiry, buying back the call at a supplied ask 18 costs TRY 1800 and realizes 600 − 1800 − 20 = −1220; the ask can include time value and a widened spread. Waiting for expiry may increase both required collateral and loss.

Practical use

Obtain the writer’s actual collateral and call process. For physical puts reserve gross strike cash; for uncovered calls identify the absence of a finite loss cap.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use short options only with independently budgeted obligations and an explicit reason to retain them. A low exercise frequency cannot justify an unaffordable tail event. For a physically delivered short put, reserve strike × deliverable units: TRY 10000 here, regardless of the premium accounting. The writer receives stock worth less than the strike after a fall. Decline an uncovered call if the loss policy requires a finite contractual maximum; stop orders cannot impose that maximum through a gap.

Practice and references

Exercise: short 2 puts K90 at premium 4, multiplier 100, total fees TRY 30. Solution: At S60 net = 800 − 2 × 100 × 30 − 30 = −5230. At zero the maximum loss is 18000 − 800 + 30 = TRY 17230. Physical-assignment funding is TRY 18000, not the initial collateral or net loss. Retaining that cash avoids a funding shortage but does not protect it from the share loss.

Takeaway: Writer premium is small relative to possible obligations; collateral does not cap loss or replace assignment funding. Reference links: product card, formula; glossary: Writer; Collateral; Uncovered call. Next: C4T1L4. Topic test.

Sources: Borsa Istanbul: Options (retrieved 2026-10-26; General information and basic concepts). Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: All Strategies (retrieved 2026-10-26; Strategy descriptions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

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