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Nearby Terms

naked option

definition

A put or call that is written by an investor who does not own a position in the underlying asset that locks in the cost of delivering the shares if the option holder elects to exercise the option. Trading naked options can be a highly risky business because if the option holder chooses to exercise his or her contractual right to buy or sell the underlying assets at the specified price, the grantor will be forced to acquire them on the open market and at the prevailing price. Compare to Covered Call; Covered Put.

Related Terms

 • covered put  • covered call