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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||1.||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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