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Term of the Day: Naked (Uncovered)

Author: David J. Kosmider (info)
Website: http://eidoan.com/
Posted: February 14th, 2007 at 8:00 am EST
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A short position not covered by an offsetting position. A trader who sells calls to open is short the call. If the underlying stock is not in the account, that call is naked (uncovered). Naked positions are considered to be the most risky as they have unlimited liability (or nearly unlimited for puts) to the trader. Naked positions require margin deposits to insure to performance by the trader.

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