There is no such animal as buying a naked call option or a naked put option. The correct usage would be my I bought a call/put. Selling an option to open with no offsetting position results in a naked position. . A naked or uncovered call is when you sell a call option without owning the underlying security or equivalent. I am sure this post will be a waste of time. as amateur traders have become accustomed to using the wrong terminology to describe their long positions.
'Naked' because it entails unlimited risk. But yes, a long call is defined risk regrdless whether it is part of a spread or combination. At least that is what I've been told.
A long option is by definition defined/limited risk. Therefore the work naked cannot be associated with it. The only risk is that it can be automatedly exercised
I know this is an LP...NOT AN LLP!! No limits!! Was thinking of USO going negative... Still LOL... Where do you want me to put (10) these 10,000 barrels of oil?? PS Wouldn't a "margin call" with nothing to back it (2008-2009 banks derivatives), be considered "naked"...
There is such an animal as a naked call. I have several years professional experience as a trader in equities and derivatives (with banks, HFT/MM and funds) and the term naked is a thing in voice brokerage where substantial blocks of options, outright or combos, are traded bilaterally between counterparts. Take a market maker as an example: Quoting bid/offer on exchange. In between they get calls (or mails and bloomberg chat msg) from brokers looking to facilitate trades in remarkable size. Think of thousands of options, where it would not make sense trading those in the open markets because the sheer volume would distort the price immediately. This is where wholesale brokers come in play. They know exactly who to talk to in order to fill such a ticket. Normally the broker would agree on the price, determining the Delta and disclose the counterparty in order to book or cross the trade. So in a trade of 10'000 options of ABC corp with a 73 delta, one would transfer the options and subsequently 730'000 shares as well, thus trading pure volatility. Since trades are executed delta-neutral, a naked option refers to a trade without a hedge. They carry a volatility AND delta risk, they are also more time sensitive since a move in the market can destroy it's viability. So yeah, naked options is a term used by market participants.
you consider the buyer of the 73 delta options naked if they do not subsequently short the underlying? what bank, HFT/MM or fund said this?
Did you read my post? Block trades... Voice brokerage... I am based in Europe, trading European markets if that matters. Everyone says naked.