| naked option n. An opening transaction in an option when the underlying asset is not owned by the investor writing the option. If a stock on which such an investor has written a call option is then called by the option holder, the investor must purchase shares in the market for delivery and is therefore caught naked. Also called uncovered option. |
Naked Option
An option position where the buyer or seller has no underlying security position.
Investopedia Commentary
Naked options are very risky. Profits are huge if the underlying asset moves in the direction desired by the investor. On the other hand, a writer of a naked option can lose big if the underlying asset moves in the opposite direction.
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See also: Call Option, Naked Call, Naked Position, Naked Shorting
naked option