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The loss of call short position is unlimited. A market risk, please correct me if I'm wrong.

A [American] Call could be assigned if it's deep in the money and closer to the maturity date. Call buyers do not bear a risk like this.

It's just my thought, not completed SS15 yet. Derivatives are used to hedge various risks and the derivatives market "allocate" the risks to the parties who know how to manage them. Overall, it's more than a zero-sum game since each party then can focus on its expertise. The overall wealth increases.



Edited 1 time(s). Last edit at Thursday, March 31, 2011 at 12:33PM by deriv108.