Definition
A naked or uncovered option is sold without holding the underlying stock (for calls) or cash to purchase it (for puts). Naked calls have theoretically unlimited risk if the stock rises sharply. Naked puts risk having to buy stock at the strike price. Requires high margin and risk tolerance.
Example
Selling a naked $100 call: if the stock rises to $150, you must buy at $150 to sell at $100, losing $50 per share.
FAQ
What is Naked Option?
Selling an option without owning the underlying asset or offsetting position.
Why is Naked Option important?
Naked Option helps investors evaluate options and make more informed decisions.