Naked Position

DEFINITION of 'Naked Position'

A securities position that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered (a covered position is hedged from market risk).

BREAKING DOWN 'Naked Position'

If an investor simply holds 500 shares of Ford, he or she has a naked position in Ford. If the investor wanted to cover this position, he or she could buy put option contracts, which would help protect against downward movements in the price of Ford shares.

Whether to have a naked position is rarely a concern for most small investors, but it is a concern for large investment holders and institutions.

RELATED TERMS
  1. Naked Shorting

    The illegal practice of short selling shares that have not been ...
  2. Naked Writer

    An options seller who does not own the underlying security for ...
  3. Naked Warrant

    A warrant that is issued without a host bond. A naked warrant ...
  4. Naked Put

    A put option whose writer does not have a short position in the ...
  5. Cross Hedge

    The act of hedging ones position by taking an offsetting position ...
  6. Perfect Hedge

    A position undertaken by an investor that would eliminate the ...
Related Articles
  1. Trading

    Naked Options Expose You To Risk

    Find out why these enticing options can spell trouble for your bottom line.
  2. Trading

    Explaining The Naked Call

    A naked call is one of the riskier options strategies around. Find out how this strategy works, as well as the potential risks and rewards of using it.
  3. Trading

    Naked Call Writing: A Risky Options Strategy

    Learn about this aggressive trading strategy to generate income as part of a diversified portfolio.
  4. Trading

    Should Your Options Go Naked?

    Compare naked strategies to credit spreads and see if the unlimited risk of going naked is worth it.
  5. Markets

    What Drives Ford's Profits? Not Just Cars

    Ford, an experienced legacy car manufacturer, sells a lot of cars around the world and makes a lot of money in the money lending and leasing business.
  6. ETFs & Mutual Funds

    The Multiple Strategies Of Hedge Funds

    Hedge fund investors or potential investors need to understand how much risk hedge funds take in making money.
  7. Trading

    Henry Ford: Industry Mogul And Industrial Innovator

    This man made his dream of bringing the automobile to the masses a reality.
  8. Trading

    Trade The Covered Call - Without The Stock

    The standard covered call can be used to hedge positions or generate income. This calendar spread may do so more effectively.
  9. Trading

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  10. ETFs & Mutual Funds

    Hedging With ETFs: A Cost-Effective Alternative

    The benefits of ETFs for hedging are clear and investors of all sizes are taking notice.
RELATED FAQS
  1. What is the difference between a covered call and a regular call?

    Learn what a call option is, what two strategies call options can be used for, and the difference between a covered call ... Read Answer >>
  2. What is the difference between shorting and naked shorting?

    Short selling involves borrowing shares of a company’s stock and selling it with the hopes it can be bought back at ... Read Answer >>
  3. How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option ... Read Answer >>
  4. How risky is a covered call?

    Learn what a covered call strategy is, how investors use it, and the risk of a covered call strategy and how it offers limited ... Read Answer >>
  5. How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors ... Read Answer >>
  6. Who are Ford's (F) main suppliers?

    Explore the history and current operations of Ford Motor Co. and discover some of its primary global parts suppliers. Read Answer >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center