Writing an option without owning the underlying asset. Holder is naked because holder may have agreed to sell something not owned.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Naked Option Strategy
An investment strategy in which one enters a position on option contracts without other, opposite options 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 options are straightforward calls or puts. An investor using naked option strategies makes a profit or loss depending on the movement of the underlying asset. A naked option is also called an uncovered option strategy. See also: Covered options.
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