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 mostly hear about naked calls, where someone sells the right to buy a stock they don't actually own—a risky move because losses can be unlimited if the stock price shoots up. Naked options are popular with experienced traders seeking higher profits, but they can backfire spectacularly. For example, if Sarah sells a naked call on TechCorp expecting the price to stay flat, but it jumps 50%, she could owe thousands. Most brokers restrict naked options to advanced accounts because the risk is substantial.