Naked Options

A naked option is an options contract (a bet on future stock price movement) where the seller doesn't own the underlying stock or have cash set aside to cover potential losses. You'll hear this term when reading about advanced trading strategies or risk warnings—it matters because naked options can expose sellers to unlimited losses. For example, if Jamie sells a naked call option on TechCorp stock, betting the price won't rise, but it skyrockets instead, Jamie could lose far more than the premium collected. Most brokers restrict naked options to experienced traders because the downside risk is severe. It's the riskier cousin of "covered" options, where the seller actually owns the stock.