In terms of risk, what disadvantage is associated with a short call option?

A short call option carries unlimited downside potential because when a trader sells a call option, they are agreeing to sell the underlying asset at a specified price if the option is exercised. If the price of the underlying asset increases significantly, there is no cap on how high it can go. As a result, the loss for the seller of the call can increase indefinitely, as they will have to purchase the asset at the prevailing market price to fulfill the contract, potentially leading to substantial financial losses.

In contrast, the other options do not accurately depict the risk profile of a short call option. While it is true that the profit potential is limited to the premium received from selling the call, the risk is not fixed with defined outcomes; it can extend indefinitely. Additionally, the ability to exit a position is not inherently limited by selling a short call—traders can close their positions if they choose, albeit potentially at a loss. Understanding this aspect is crucial as it highlights the importance of risk management strategies when dealing with derivatives like options.