A naked writer generally means a trader who is a seller/writer of an option (call/put) who does not have enough cover/protection or hedge to buy the underlying asset in case the price moves in the opposite direction. When the seller of an option contract is not in a position to execute the contract, it exposes him to the underlying risk associated with option trading. The naked writer is also known as an ‘uncovered writer’. A deal or transaction with a naked writer is considered to be a risky transaction. However, if the price of the underlying asset increases in value considerably, the potential to earn is good.
