Naked Call or Put
A naked call or naked put is an options position sold ("written") by itself, with nothing else in the account to cushion or cap the potential loss. The word "naked" refers to the lack of protection — there is no stock, no other option, and no cash set aside that would limit how bad things can get if the trade moves against you.
To understand this, back up to what selling an option means. When you sell a call, you are promising to deliver 100 shares of the underlying stock at a set price (the strike) if the buyer exercises it. When you sell a put, you are promising to buy 100 shares at the strike if the buyer exercises it. In exchange for taking on that obligation, you collect a premium upfront. If you already own the shares behind a call you sold, that call is "covered" — the stock itself satisfies the obligation. A naked call has no such stock backing it up, so if the price rockets higher, the seller must buy shares at the market price to deliver them at the lower strike, and there is no ceiling on how high a stock can go. A naked put has no offsetting short stock or cash reserved to buy the shares, so if the price collapses, the seller is still on the hook to buy at the strike, though the loss is capped at the stock falling to zero.
The nuance that trips people up is that naked options can look deceptively calm most of the time. The premium comes in immediately, and if the stock sits still or moves only slightly, the position seems to be "free money." The risk is asymmetric and mostly hidden until a sharp move happens, at which point the loss can dwarf the premium collected many times over. This is why naked options — especially naked calls — are treated very differently from covered ones in terms of account permissions and the amount of money a broker requires you to hold in reserve.
Because of that risk, brokers restrict who can trade naked options, and exchanges and regulators require sellers to post collateral (margin) sized to the potential loss, not just the premium received. The exact margin formulas and account approval tiers vary by broker and are set by exchange and regulatory rules that change over time.
This term depends on a rule or threshold that changes over time, so no specific figure is quoted here. The definition avoids citing specific margin percentages, account approval tiers, or broker collateral formulas for naked options, since these are set by exchanges (e.g., OCC), FINRA, and individual brokers and change over time. A human editor should confirm current margin requirement formulas and account approval criteria for naked options against the relevant exchange/FINRA rulebook or the broker's current margin schedule before publishing any specific numbers.
Day traders who sell naked options are exposed to theoretically unlimited (for calls) or very large (for puts) loss from a single sharp intraday move, and brokers can force-close or demand more margin mid-session if the position moves against them fast — so understanding "naked" exposure matters before ever placing the sell order.
A trader sells one naked call on a stock trading at $50, with a strike of $55, collecting $1.20 per share ($120 total) in premium. If the stock stays below $55 through expiration, the option expires worthless and the trader keeps the $120. But if the stock unexpectedly jumps to $70 on an acquisition rumor, the trader — who owns no shares to cover the obligation — must buy stock at $70 to deliver it at $55, a $15-per-share loss ($1,500) against a $120 credit received.
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