naked option

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Related to Naked Options: Covered Options, Covered calls

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.
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.
ThesaurusAntonymsRelated WordsSynonymsLegend:
Noun1.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
Based on WordNet 3.0, Farlex clipart collection. © 2003-2012 Princeton University, Farlex Inc.
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selling naked options can seem, at first glance, to be a good way to earn a premium, but there can be several unexpected and unpredictable problems during the option's life.
Selling naked options can seem a good way to earn a premium, but there can be unexpected and unpredictable problems
But this is not the case for naked option sellers - those who do not own the shares or the underlying asset.