What is Naked Writer?
A choices supplier who does not own the actual protection for the number of choices agreement he or she offers. Choices agreements that give the customer the right but not the responsibility to buy (call) or offer (put) stocks at a particular price and upcoming date. Since a Naked Writer does not hold a position in the actual protection showed in the number of choices agreement, the trader is confronted with more risk.
Description of Naked Writer
Naked Writers are subjected to additional threat since they keep no place with which to secure against the adverse activity of the actual security’s price. If the options agreement is performed out, the Naked Writer would be forced to get into a business a certain number of shares at a probably undesirable price. Naked Writers try to benefit by getting rates for composing the agreements without the need to discuss lots. The primary purpose for option authors is to earn cash by gathering rates when agreements are sold to open a position. For call authors, options end out of the cash when the stock cost ends below the attack cost of the contract. Out-of- the cash places expire when the cost of the actual stocks ends above the strike price. In both situations, the writer keeps the entire top quality received from the sale of the agreements.