Naked option
Definition · Level 4 · Naked options
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A short option with no stock position or long option offsetting it; also called uncovered. The seller bears the full loss as it goes deeper in the money — unlimited for a call, up to strike − premium for a put.
Example
Short 10 XYZ 45 calls with no shares = uncovered.
Where Tradecraft teaches it
Level 4 · Naked options, in the lesson “What undefined risk means”: The top tier of this course’s approval ladder, and why these trades have no worst case you can fully write down.
Related terms
- Short Naked CallSell a call without owning the stock or a higher call.
- Undefined riskExposure with no long option or stock capping the loss: unlimited for a naked short call (every dollar above the strike is lost) or short-stock-like…
- Blow-upLosing all or most of an account in a single event, usually from oversized short-vol or leveraged positions.
- Calendar Spread – CreditBuy the near-term option and sell the longer-term one at the same strike.
- Delta hedgingTrading the underlying (or futures) to offset a position’s delta so small moves barely change P&L, leaving gamma, theta and vega; it must be redone…
- Diagonal Spread – Long leg expires firstBuy a near-term option and sell a longer-term one at a different strike.