naked option

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.

American Heritage® Dictionary of the English Language, Fifth Edition. Copyright © 2016 by Houghton Mifflin Harcourt Publishing Company. Published by Houghton Mifflin Harcourt Publishing Company. All rights reserved.

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Noun

naked option - a put or call option for which the seller or buyer has no underlying security position

option - the right to buy or sell property at an agreed price; the right is purchased and if it is not exercised by a stated date the money is forfeited

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References in periodicals archive

But this is not the case for naked option sellers - those who do not own the shares or the underlying asset.

the potential pitfalls of naked options laid bare

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