A short put option position in which the writer does not have a corresponding short stock position or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put. The writer has pledged to buy the asset at a certain price if the buyer of the option chooses to exercise it. Uncovered put options limit the writer's risk to the value of the stock (adjusted for premium received.) Also called "naked" puts.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A short position on a put option without having enough cash or cash equivalent to buy the underlying asset should the holder exercise the option. An investor with a naked put makes a gain or loss depending on the movement of the underlying asset. This position is quite risky and can result in large losses should the underlying asset not move in the investor's preferred direction. Naked puts are also called uncovered puts. See also: Covered Options.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved