Naked Writer

See: Naked Option. See: Naked Call. See: Naked Put.

The group of people you’d least like to see naked. Wake us up when we get to the term “Naked Olympic Volleyball Player.”

Besides being the least searched term on Pornhub, “naked writer” applies to a situation in the options market. Specifically, it applies to someone who sells an option (that is, writes an option contract) but doesn’t own the underlying asset or hold an appropriate hedge.

You purchase an option to buy 300 shares of AMZN stock at $1,900 a share, expiring in two months. The other end of that option involves a party writing the contract. They have agreed to sell you those 300 shares of AMZN at $1,900 if you exercise your option two months from now.

If the person selling that option doesn't own 300 shares of AMZN, they are said to be a "naked writer." They are writing the contract without possessing the underlying asset they just agreed to sell. Think: unhedged, nakedly exposed seller of an option.

The goal of the naked writer is to earn money through the sale of the options contract. They are hoping you don't exercise your option. If AMZN shares are trading at $1,850 at the expiration date, the naked writer wipes the sweat from their brow and does a happy dance around their office. Hopefully clothed.