Investor Glossary-naked optionInvestor Glossary-naked optionInvestor Glossary-naked optionInvestor Glossary-naked optionInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Naked Option

The HTML to link to this page
 

A naked option is an option contract that creates potentially significant exposure because the option writer does not have an offsetting position. For instance, if an investor sells a call option for a stock without owning shares of that stock, the call is said to be a naked option. If the call option is exercised, the naked option writer must buy shares at the market price, no matter how high, then sell those shares at the strike price. This type of naked option is sometimes called an uncovered call. Similarly, the uncovered put is a naked option contract in which the writer does not have a short position in the asset. If the put is exercised, the writer of this naked option will be forced to buy shares for above market price. A naked option can be extremely profitable provided the price of the underlying moves in the right direction. Writing a naked option is an extremely speculative investment.



Rate this naked option definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: inflation, stock split, required rate of return, 144a, option premium, VIX, class C shares, implied volatility, diluted share, average price per share, APR, risk management, deferred revenue, LIBOR, limit order, deferred tax, real GDP, ex-dividend, current ratio, annual return, minority interest, 1031 exchange, stock market close, FICO score, labor relations, per diem, retained earnings, quality assurance, ex-dividend date, FTSE, debt service coverage, liquidity ratio, 401a, command economy, dividends payable, Key Rate Duration, Zero Cost Collar, irrevocable trust, balance sheet, reverse mortgage, open position, 1035 exchange, phantom income, covered put, cancelled check, in escrow, EBITDA, wholly-owned subsidiary, margin rate


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use