Naked Call
Categories: Derivatives
See: Naked Option. Yes, naked. Woooh. (And yes, we're still 15.)
A naked call is just a call option with nothing else attached to it.
Why is that even a Thing? Why wouldn't a call option be just naked always? Well, most pro derivatives traders don't do much, if anything...naked. And if you've seen them in real life you'll be glad for this fact. A normal trade might be selling a naked call while buying the stock underneath it. That trade is a covered call.
So think about KO at $50 a share, whicih is where it's trading today. You buy it long. But don't love it long-term. So you'd be happy to sell it at $55. You sell a covered call with a strike price of $55 that's long-dated, meaning that it expires 6 months from now, so you collect a lot of premium...like 2 bucks. Then your net cost on KO is $48, and if it goes to $60 and your stock gets called away, then great. You're happy to be out.
Naked is the opposte of this. If you were speculating that your one call option (selling the 6 month out $55 strikes) would work, then that's a naked call. Waaaaay more, um, exposed.