82:. Naked option are attractive because the seller receives the premium cost of the option without buying a corresponding position to hedge against potential losses. In the case of a naked put, the seller hopes that the underlying equity or stock price stays the same or rises. In the case of a naked call, the seller hopes that the underlying equity or stock price stays the same or drops. And the seller's odds of retaining the premium at expiration increase the further the naked option is
28:
20:
1198:
106:
However, the naked option has the highest risk because sellers have agreed to cover the contract in case of assignment, no matter how far the price of the stock goes. The seller of a naked put would be obligated to purchase the underlying stock at the strike price even if its market price drops down
124:
Shares of XYZ is currently selling at $ 85 per share and
Speculator A decides to sell a call option at a strike price of $ 100 per share on or before May 10 for $ 24. If the XYZ shares fail to rise above $ 100 before May 10, the call option expires worthless and Speculator A makes a profit of $ 24.
138:
Shares of XYZ is currently selling at $ 85 per share and
Speculator A decides to sell a put option at a strike price of $ 75 per share on or before June 10 for $ 24. If the XYZ shares fail to drop below $ 75 before June 10, the put option expires worthless and Speculator A makes a profit of $ 24.
129:
and sell them back for $ 100 each. In this scenario, the
Speculator A makes a loss of (100 * XYZ market price) - (100 * $ 100) - $ 24. As market price can rise an unlimited amount, Speculator A can experience unlimited losses in this 'worst case' scenario.
107:
to zero. Likewise, the seller of a naked call could be forced to short the underlying stock at the strike price even if its market price rises up to an unlimited amount. Because nothing is covered to protect against potential losses, a
102:
at assignment or expiration. Likewise, one with sufficient equity to borrow on margin could sell a call option, receive the premium, and then short the stock if its price rises to or above the strike price at assignment or expiration.
97:
to open an equity position. Instead of buying an underlying stock outright, one with sufficient cash could sell a put option, receive the premium, and then buy the stock if its price drops to or below the
139:
However, if the XYZ shares drop at or below $ 75, Speculator A would be obligated to buy 100 shares of XYZ at a price of $ 75, even if the market price drops at or near $ 0.
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59:). Nor does the seller hold any option of the same class on the same underlying asset that could protect against potential losses (like in an
268:
Mark D. Wolfinger, "The Rookie's Guide to
Options" The Beginner's Handbook of Trading Equity Options" W&A Publishing, Cedar Falls, 2008.
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78:, and therefore most brokers restrict them to only those traders that have the highest options level approval and have a
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would be triggered if the seller does not have enough equity or cash to cover the contract in case of assignment.
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However, if the XYZ shares rise above $ 100, Speculator A would be obligated to buy 100 shares of XYZ at
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222:"What to know about naked options — from how it works to why it's risky"
89:
Selling a naked option could also be used as an alternative to using a
67:" is called a "naked call" or "uncovered call", while one involving a "
294:
52:
26:
18:
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to cover the contract in case of assignment (like in a
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writer (i.e., the seller) does not hold the underlying
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1142:Power reverse dual-currency note (PRDC)
1082:Constant proportion portfolio insurance
148:
71:" is a "naked put" or "uncovered put".
7:
1077:Collateralized debt obligation (CDO)
74:The naked option is one of riskiest
156:Scott, Gordon (December 31, 2021).
191:"Naked Options Expose You to Risk"
31:Payoffs from a short call position
14:
248:"When to Use A Naked Call Option"
220:Chandler, Simon (July 29, 2022).
23:Payoffs from a short put position
1196:
63:). A naked option involving a "
904:Year-on-year inflation-indexed
279:Chicago Board Options Exchange
189:Butler, Chad (July 11, 2022).
1:
914:Zero-coupon inflation-indexed
246:Juggernaut (July 12, 2012).
86:at the time it was written.
1117:Foreign exchange derivative
509:Callable bull/bear contract
1240:
1191:
1018:Stock market index future
332:
284:Australian Stock Exchange
1137:Mortgage-backed security
1132:Interest rate derivative
1107:Equity-linked note (ELN)
1092:Credit-linked note (CLN)
1087:Contract for difference
388:Risk-free interest rate
869:Forward Rate Agreement
32:
24:
1097:Credit default option
441:Employee stock option
30:
22:
1051:Inflation derivative
1036:Commodity derivative
1008:Single-stock futures
998:Normal backwardation
988:Interest rate future
829:Conditional variance
335:Derivative (finance)
1203:Business portal
1056:Property derivative
16:Investment strategy
1061:Weather derivative
1046:Freight derivative
1028:Exotic derivatives
948:Commodities future
635:Intermarket spread
398:Synthetic position
326:Derivatives market
291:, Options tutorial
120:Naked call example
76:options strategies
33:
25:
1224:Options (finance)
1211:
1210:
1112:Equity derivative
1102:Credit derivative
1070:Other derivatives
1041:Energy derivative
1003:Perpetual futures
884:Overnight indexed
834:Constant maturity
795:
794:
742:Finite difference
675:Protective option
254:on July 10, 2013.
134:Naked put example
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1201:
1200:
973:Forwards pricing
747:Garman–Kohlhagen
348:
319:
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250:. Archived from
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226:Business Insider
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84:out of the money
49:options contract
45:options strategy
41:uncovered option
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1173:Great Recession
1168:Government debt
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1122:Fund derivative
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983:Futures pricing
958:Dividend future
953:Currency future
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767:Put–call parity
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690:Vertical spread
625:Diagonal spread
595:Calendar spread
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263:Further reading
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844:Credit default
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640:Iron butterfly
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548:Mountain range
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273:External links
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158:"Naked Option"
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80:margin account
61:options spread
57:covered option
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772:MC Simulation
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685:Risk reversal
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615:Credit spread
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461:Option styles
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378:Open interest
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358:Delta neutral
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978:Forward rate
889:Total return
777:Real options
680:Ratio spread
660:Naked option
659:
620:Debit spread
451:Fixed income
393:Strike price
289:Investopedia
252:the original
241:
229:. Retrieved
225:
198:. Retrieved
195:Investopedia
194:
165:. Retrieved
162:Investopedia
161:
151:
137:
127:market price
123:
105:
100:strike price
88:
73:
40:
37:naked option
36:
34:
909:Zero Coupon
839:Correlation
787:Vanna–Volga
645:Iron condor
431:Bond option
109:margin call
91:limit order
1183:Tax policy
899:Volatility
809:Amortising
650:Jelly roll
585:Box spread
580:Backspread
572:Strategies
408:Volatility
403:the Greeks
368:Expiration
231:October 1,
200:October 1,
167:October 1,
143:References
95:stop order
47:where the
874:Inflation
824:Commodity
782:Trinomial
717:Bachelier
709:Valuation
590:Butterfly
524:Commodore
373:Moneyness
1218:Category
1013:Slippage
943:Contango
927:Forwards
894:Variance
854:Dividend
849:Currency
762:Margrabe
757:Lattices
736:equation
722:Binomial
670:Strangle
665:Straddle
562:Swaption
544:Lookback
529:Compound
471:Warrants
446:European
426:American
418:Vanillas
383:Pin risk
363:Exercise
115:Examples
932:Futures
552:Rainbow
519:Cliquet
514:Chooser
494:Barrier
481:Exotics
343:Options
993:Margin
859:Equity
752:Heston
655:Ladder
605:Condor
600:Collar
557:Spread
504:Binary
499:Basket
43:is an
864:Forex
819:Basis
814:Asset
801:Swaps
727:Black
630:Fence
489:Asian
351:Terms
53:asset
698:Bull
694:Bear
436:Call
233:2022
202:2022
169:2022
65:call
466:Put
93:or
69:put
39:or
1220::
696:,
456:FX
224:.
210:^
193:.
177:^
160:.
35:A
738:)
734:(
700:)
692:(
318:e
311:t
304:v
235:.
204:.
171:.
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.
