   
|
|
|
|
Naked Option
|
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. |
|
Is the stock market headed lower? The answer may surprise you.
Find out now with the exclusive & highly regarded charts of Chart of the Day.
|
Popular Terms : deferred revenue, 401a, forward PE, minority interest, deferred tax, retained earnings, average price per share, trailing PE, 144a, real GDP, FICO score, diluted share, wholly-owned subsidiary, net book value, cancelled check, debt service coverage, 1031 exchange, LIBOR, liquidity ratio, arm's length transaction, option premium, inflation, commodity, EBITDA, per diem, reverse mortgage, balance sheet, 1035 exchange, Zero Cost Collar, phantom income, assets under management, margin rate, required rate of return, covered put, Key Rate Duration, current ratio, APR, class C shares, quant, Russell 3000, stock, asset/equity ratio, CUSIP, Black Friday, annualize
|
|
|
|
Rate the naked option definition... |
|
Receive our free Term of the Day email. |
|
|