What is an Uncovered Option?
” Uncovered options are options that are not backed by another position. Sometimes referred to as a naked option, it is possible for the investor to sell the uncovered option along with the right to purchase the underlying investment for a specified strike price. This is in spite of the fact that the investor does not have control of the underlying investment. In the event that the buyer chooses to exercise his or her right to purchase the underlying investment, then the seller will have to buy the underlying asset and sell it according to the terms outlined in the sale of the uncovered call option. .
Uncovered options are options that are not backed by another position. Sometimes referred to as a naked option, it is possible for the investor to sell the uncovered option along with the right to purchase the underlying investment for a specified strike price. This is in spite of the fact that the investor does not have control of the underlying investment. In the event that the buyer chooses to exercise his or her right to purchase the underlying investment, then the seller will have to buy the underlying asset and sell it according to the terms outlined in the sale of the uncovered call option. There is an element of risk involved with this type of investment strategy. The hope is that in the event that the buyer chooses to purchase the underlying investment, the seller will be able to acquire the investment at a price that is lower than the rate quoted to the buyer. When this is the case, it is possible to make a profit from the transaction. In order to maximize the chances for thi
