Naked Calls Explained: Risks, Rewards, and 2025 Trends for Australian Investors

Naked calls—sometimes called uncovered calls—are a daring play in the options market that can make or break even the most seasoned investors. While the rewards can be enticing, the risks are nothing short of dramatic. With the ASX seeing record options trading volumes in early 2025, understanding naked calls is more relevant than ever for Australian investors considering advanced strategies.

What Exactly is a Naked Call?

A naked call is when an investor sells call options on a stock or index without actually owning the underlying asset. This means if the buyer exercises their right to buy the shares (because the price rises above the strike), the seller is obliged to provide them—potentially buying them at market price, no matter how high it’s soared. There’s theoretically unlimited risk for the seller, but the profit is capped at the premium received from selling the call.

• Example: If you sell a naked call on CSL Limited at a $300 strike, and CSL jumps to $350, you’ll have to buy shares at $350 and sell them at $300, locking in a $50 loss per share—minus the small premium earned upfront.
• Max Profit: The premium received when selling the call.
• Max Loss: Unlimited, as there’s no cap on how high the stock can go.

Why Do Traders Use Naked Calls?

Despite the risk, naked calls can be tempting for a few reasons:

• Generating Income: Investors collect premiums upfront, which can look appealing in sideways or bear markets.
• Bearish Outlook: If you believe a stock will fall or stay flat, selling naked calls can be profitable if the option expires worthless.
• Short-Term Opportunities: Some traders use naked calls to exploit short-term volatility spikes, especially around earnings season or major announcements.

However, the risk profile means this strategy is only suitable for those with a high risk appetite and the ability to monitor positions closely.

Naked Calls in Australia: 2025 Regulatory & Market Updates

The Australian Securities Exchange (ASX) has seen a sharp increase in options activity in 2025, reflecting global trends as investors seek both protection and yield in a volatile environment. Here’s what’s new:

• Margin Requirements: In March 2025, ASX tightened margin requirements for uncovered options writers. Higher upfront collateral is now required, making it harder for undercapitalised traders to take on naked positions.
• Broker Restrictions: Many Australian brokers, including CommSec and SelfWealth, updated their risk assessments for clients trading naked calls, requiring advanced options accreditation and stricter suitability checks.
• ASIC Scrutiny: The Australian Securities & Investments Commission has flagged naked options as high risk, warning retail investors and reminding advisers of their obligations under the updated Design and Distribution Obligations (DDO) regime.

With the 2025 federal budget allocating new resources to financial market surveillance, expect more oversight of complex derivatives trading in the months ahead.

Should Naked Calls Have a Place in Your Strategy?

For most retail investors, naked calls are best approached with caution—or avoided entirely. The risks can quickly outweigh the rewards, especially in a fast-moving market where a surprise announcement or geopolitical shock can send stocks soaring. Consider these factors:

• Capital Requirements: Ensure you have sufficient margin and understand the worst-case scenarios.
• Risk Management: Use stop-loss orders or portfolio hedges to limit downside, but remember that gaps and volatility can still lead to outsized losses.
• Alternatives: Covered calls or vertical spreads can offer similar income with significantly lower risk.

Ultimately, naked calls are a tool for experienced investors with both the capital and temperament to handle large, fast-moving losses. For most, safer options strategies or diversified investments are better suited to building long-term wealth.