Question Details

	Username: LuckyMan Rating: Asked to: Jun Wang Date Created: 26 Jan 2019
Category	28
Tag	Financial
Question	What is a Naked Option?

Advice from Guru

Hello LuckyMan,

A naked option is created when the seller of an option contract does not currently own any, or enough, of the underlying security to meet the potential obligation that results from selling (also known as "writing" or "shorting") an option.

A naked position refers to a situation in which a trader sells an option contract without holding a position in the underlying security as protection from an adverse shift in price. Naked positions are regarded as very risky because some positions can, in theory, lead to an unlimited loss. This is why many brokers do not allow inexperienced traders to place this type of order.

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