DEFINITION of 'Naked Writer'
An options seller who does not own the underlying security for the options contract he or she is offering. Options are contracts that give the buyer the right but not the obligation to buy (call) or sell (put) shares at a particular price and future date. Since a naked writer does not hold a position in the underlying security represented in the options contract, the investor is exposed to more risk.
Also called uncovered writer or uncovered options writer.
BREAKING DOWN 'Naked Writer'
Naked writers are exposed to additional risk, since they hold no position with which to hedge against the adverse movement of the underlying security's price. If the options contract is exercised, the naked writer would be forced to buy or sell a certain number of shares at a potentially undesirable price. Naked writers try to profit by receiving premiums for writing the contracts without the need to purchase share lots.