Naked Call

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Naked Call

An investment strategy in which one sells a call without owning the underlying asset to hedge the risk. Unlike more complex spreads and straddles, which involve the purchase or sale of multiple options in order to profit in different ways, naked calls are straightforward calls. An investor using a naked call strategy makes a profit or loss depending on the movement of the underlying asset. The risk to a naked call is that the option will be exercised, requiring the seller to buy the underlying asset at the market price and then immediately sell it (usually at a loss) to fulfill the terms of the call. Naked calls are also called uncovered calls. See also: Covered Options. Naked Put.
References in periodicals archive ?
Use of uncovered calls is a fundamental mistake (an uncovered call obligates the seller to sell stock not owned at a set price, in essence creating unlimited liability).