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Naked Position

What is 'Naked Position'

A securities position that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered (a covered position is hedged from market risk).

Explaining 'Naked Position'

If an investor simply holds 500 shares of Ford, he or she has a naked position in Ford. If the investor wanted to cover this position, he or she could buy put option contracts, which would help protect against downward movements in the price of Ford shares.


Further Reading


Are there benefits to being naked? the returns and diversification impact of capital structure arbitrage
www.tandfonline.com [PDF]
… University 'Our hope must be that Debunking Economics will be read by enough people to prompt reform of our economic thinking and … DEBUNKING ECONOMICS – REVISED, EXPANDED AND INTEGRATED EDITION THE NAKED EMPEROR DETHRONED7 …

The economics of naked short sellingThe economics of naked short selling
heinonline.org [PDF]
… University 'Our hope must be that Debunking Economics will be read by enough people to prompt reform of our economic thinking and … DEBUNKING ECONOMICS – REVISED, EXPANDED AND INTEGRATED EDITION THE NAKED EMPEROR DETHRONED7 …

Naked short selling and market returnsNaked short selling and market returns
jpm.pm-research.com [PDF]
… University 'Our hope must be that Debunking Economics will be read by enough people to prompt reform of our economic thinking and … DEBUNKING ECONOMICS – REVISED, EXPANDED AND INTEGRATED EDITION THE NAKED EMPEROR DETHRONED7 …

Leadership, hegemony, and the international economy: Naked emperor or tattered monarch with potential?Leadership, hegemony, and the international economy: Naked emperor or tattered monarch with potential?
academic.oup.com [PDF]
… University 'Our hope must be that Debunking Economics will be read by enough people to prompt reform of our economic thinking and … DEBUNKING ECONOMICS – REVISED, EXPANDED AND INTEGRATED EDITION THE NAKED EMPEROR DETHRONED7 …

The impact of option strategies in financial portfolios performance: Mean-variance and stochastic dominance approachesThe impact of option strategies in financial portfolios performance: Mean-variance and stochastic dominance approaches
papers.ssrn.com [PDF]
… University 'Our hope must be that Debunking Economics will be read by enough people to prompt reform of our economic thinking and … DEBUNKING ECONOMICS – REVISED, EXPANDED AND INTEGRATED EDITION THE NAKED EMPEROR DETHRONED7 …

The efficacy of Regulation SHO in resolving naked shortsThe efficacy of Regulation SHO in resolving naked shorts
www.emerald.com [PDF]
… University 'Our hope must be that Debunking Economics will be read by enough people to prompt reform of our economic thinking and … DEBUNKING ECONOMICS – REVISED, EXPANDED AND INTEGRATED EDITION THE NAKED EMPEROR DETHRONED7 …



Q&A About Naked Position


Where could you buy put option contracts on Ford stock?

You could buy them at any brokerage firm that handles options trading.

Which type of trader might prefer naked positions over covered ones?

A speculator might prefer naked positions over covered ones because he or she expects prices will rise significantly and wants maximum gains without having to pay out-of-pocket costs for insurance (puts).

Why would someone want to take on a naked position?

There are several reasons why someone might want to take on a naked position, including making money if the price goes down and trying to avoid paying taxes by using capital losses.

If you wanted to cover your Ford stock with put option contracts, how many contracts would you need?

You would need one contract for each share of Ford stock that you own.

How can you reduce your risks in an investment?

You can reduce your risks in an investment by using options to cover your positions.

Why do investors use options to hedge positions?

Investors use options to hedge positions because they want to limit their losses on investments.

What can happen if you do not offset your positions?

If you do not offset your positions, you could end up with large losses that will be taxed as ordinary income.

What does it mean for an investor to be "naked"?

An investor who has no protection against loss, or whose only protection against loss consists of holding onto his or her shares, would be considered "naked."

What are examples of a naked position?

Examples of a naked position include short selling without having bought the stock first or buying stocks without having sold any previously.

What is a naked position?

A naked position is a securities position that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered (a covered position is hedged from market risk).

What is Naked Position?

A naked position is a position in which the investor does not have an offsetting transaction.

What does it mean for an investor to have a "covered" position?

An investor who has bought put option contracts, which would help protect against downward movements in the price of Ford shares, would have a covered position in Ford.

Which type of trader might prefer covered positions over naked ones?

A conservative trader might prefer covered positions over naked ones because he or she doesn't want large losses