Just call us Bond. Amortized bond.
Over 700 finance terms, Shmooped to perfection.
Yeah, these sound a lot more exciting than what they actually are.
Naked options are just options that you sell without having enough of the underlying security to cover your butt if the price changes. (See covered options.) If you sell call options and don't own the stock, you could lose a boatload of money if the stock price goes up because you have to buy the stock at the higher price to meet your obligation.
You sell an option that lets Mary, the next-door-neighbor with the yappy Yorkie, buy 100 shares of dentalfloss.com for $1,000. You own 50 shares of the stock right now and it's trading at $10 a share.
But then the company releases it's new super minty dental floss that's sparkly and plays music while you floss. People go crazy for it.
Now the price of shares is $30. Mary comes over with her barking Yorkie and decides to exercise her option. You fork over your 50 shares and you have to buy 50 shares at $30 each ($1500) on top of that to hand over the 100 shares.