Naked Option

A naked option is a financial contract where someone sells a stock option without owning the underlying stock or having a hedge in place. This means the seller takes on significant risk because if the market moves against them, they could face large losses. For example, selling a call option without owning the stock can require buying the stock at a high price if the option is exercised. Naked options are considered high-risk strategies and are typically used by experienced investors who understand the potential for substantial financial exposure.