Naked Option Law and Legal Definition
Naked option is an option position where the buyer or seller has no underlying security position. It is an opportunity to buy stock at a fixed price, offered by a seller who does not own the stock to back up the promise. If the buyer wants to exercise the option, the seller must purchase the stock at market price to make good on the offer.
Naked options are very risky. Profits are huge if the underlying asset moves in the direction desired by the investor. On the other hand, a writer of a naked option can lose big if the underlying asset moves in the opposite direction.
Legal Definition list
Related Legal Terms
- Abandonment Option
- Abandonment [Intercountry Adoption]
- Accredited Agency [Adoption]
- Accredited Body [Adoption]
- Accrediting Entity [Adoption]
- Adoption and Foster Care Analysis and Reporting System (AFCARS)
- Adoption and Safe Families Act (ASFA)
- Adoption Assistance and Child Welfare Act of 1980
- Adoption Disruption