naked position

Naked Position

A securities position that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered (a covered position is hedged from market risk).

Notes:

If an investor simply holds 500 shares of Ford, he or she has a naked position in Ford. If the investor wanted to cover this position, he or she could buy put option contracts, which would help protect against downward movements in the price of Ford shares.

Whether to have a naked position is rarely a concern for most small investors, but it is a concern for large investment holders and institutions.

See also: Covered Call, Hedge, Institutional Investor, Naked Call, Naked Option, Naked Put, Naked Shorting, Put Option, Risk

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naked position

A security position, either long or short, that is not hedged. For example, an investor short 500 shares of IBM with no other position in IBM stock (such as ownership of calls) has a naked position in that security. Because a naked position subjects the investor to large potential gains or losses, it is an aggressive investment position.