Pronunciation: [nˈe͡ɪkɪd kˈɔːl] (IPA) 
The word "naked call" is spelled as /ˈneɪkɪd kɔːl/. The first syllable is pronounced as "nay" with a long a sound, and the second syllable as "kid" with a short i sound. The letter "e" in the second syllable is silent. The word "call" is pronounced with a long o sound, as in "ball." In finance, a naked call refers to an options trading strategy where a call option is sold without owning the underlying asset.
A naked call refers to a type of options trading strategy in which an investor sells (or writes) a call option without owning the underlying asset. This strategy exposes the seller to potentially unlimited risk if the price of the underlying asset rises significantly.
In a naked call, the seller receives a premium payment from the buyer in exchange for granting them the right to buy the underlying asset at a predetermined price within a specific time frame. The seller assumes a bearish outlook and anticipates that the price of the underlying asset will remain below the strike price of the call option until expiration, making the option worthless.
However, if the price of the underlying asset rises above the strike price, the seller is obligated to sell the asset at the lower strike price, resulting in a loss equal to the difference between the strike price and the market price. Since the seller does not own the underlying asset, they must purchase it from the market at the prevailing market price to fulfill their obligation.
The risk of a naked call strategy lies in the potential for significant losses. To mitigate these risks, options traders often employ various risk management strategies, such as using stop-loss orders or implementing protective strategies like buying a call option at a higher strike price. It is important for traders to have a thorough understanding of options trading, market trends, and risk management techniques before considering engaging in naked calls.
The word "naked call" in the context of finance and options trading has its origins in the late 19th and early 20th centuries. The term "naked" refers to a position in which the option seller does not hold an offsetting position in the underlying asset.
The concept of options trading can be traced back to ancient times, but the modern usage of the term "naked call" emerged with the development of organized exchanges and standardized options contracts in the 19th century.
The term "call" in options trading refers to the right to buy a specific asset at a predetermined price within a certain timeframe. A "naked call" occurs when an investor sells a call option without owning the underlying asset.
The use of the word "naked" suggests vulnerability or exposure, indicating that the seller of a naked call is not protected by owning the underlying asset.
