BROWSE

Uncovered Option

What is an 'Uncovered Option'

An uncovered option is a type of options contract that is not backed by an offsetting position that would help mitigate risk. "Trading naked", as it is called, poses significant risks. However, an uncovered options contract can be profitable for the writer if the buyer cannot exercise the option because it is out of the money.

Explaining 'Uncovered Option'

If a market participant sells a call option without owning the underlying instrument, the call is uncovered. If the buyer exercises his or her right to purchase to underlying instrument, the person who sold the call option (the writer) will need to buy the underlying instrument at its current market price in order to fulfill the contract.


Further Reading


Currency option pricing with mean reversion and uncovered interest parity: A revision of the Garman-Kohlhagen model
www.sciencedirect.com [PDF]
… The following Section 2 states more precisely what we mean by Uncovered Interest Parity … that, Section 3 derives the domestic call value for a European currency option, and Section 4 … are derived in a fashion somewhat similar to Jamshidian's paper [21] on options on discount …

The arbitrage principle in financial economicsThe arbitrage principle in financial economics
www.aeaweb.org [PDF]
… The following Section 2 states more precisely what we mean by Uncovered Interest Parity … that, Section 3 derives the domestic call value for a European currency option, and Section 4 … are derived in a fashion somewhat similar to Jamshidian's paper [21] on options on discount …

Foreign-currency bonds: Currency choice and the role of uncovered and covered interest parityForeign-currency bonds: Currency choice and the role of uncovered and covered interest parity
www.tandfonline.com [PDF]
… The following Section 2 states more precisely what we mean by Uncovered Interest Parity … that, Section 3 derives the domestic call value for a European currency option, and Section 4 … are derived in a fashion somewhat similar to Jamshidian's paper [21] on options on discount …

Monetary policy uncovered: theory and practiceMonetary policy uncovered: theory and practice
www.tandfonline.com [PDF]
… The following Section 2 states more precisely what we mean by Uncovered Interest Parity … that, Section 3 derives the domestic call value for a European currency option, and Section 4 … are derived in a fashion somewhat similar to Jamshidian's paper [21] on options on discount …

The economics of the uncovered interest parity condition for emerging marketsThe economics of the uncovered interest parity condition for emerging markets
onlinelibrary.wiley.com [PDF]
… The following Section 2 states more precisely what we mean by Uncovered Interest Parity … that, Section 3 derives the domestic call value for a European currency option, and Section 4 … are derived in a fashion somewhat similar to Jamshidian's paper [21] on options on discount …

Financial market complexityFinancial market complexity
ideas.repec.org [PDF]
… The following Section 2 states more precisely what we mean by Uncovered Interest Parity … that, Section 3 derives the domestic call value for a European currency option, and Section 4 … are derived in a fashion somewhat similar to Jamshidian's paper [21] on options on discount …

Testing the uncovered interest parity using traded volatility, a time-varying risk premium and heterogeneous expectationsTesting the uncovered interest parity using traded volatility, a time-varying risk premium and heterogeneous expectations
www.sciencedirect.com [PDF]
… The following Section 2 states more precisely what we mean by Uncovered Interest Parity … that, Section 3 derives the domestic call value for a European currency option, and Section 4 … are derived in a fashion somewhat similar to Jamshidian's paper [21] on options on discount …

Some structural hypotheses in a multivariate cointegration analysis of the purchasing power parity and the uncovered interest parity for UKSome structural hypotheses in a multivariate cointegration analysis of the purchasing power parity and the uncovered interest parity for UK
ideas.repec.org [PDF]
… The following Section 2 states more precisely what we mean by Uncovered Interest Parity … that, Section 3 derives the domestic call value for a European currency option, and Section 4 … are derived in a fashion somewhat similar to Jamshidian's paper [21] on options on discount …


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