Naked position is one of the security positions taken which does not have hedge against market risk. In case of naked position, the potential loss as well as potential gain is higher compared to the covered position.
Suppose that an investor has 100 shares of XYZ, and holds naked position in XYZ. Now, for covering the position, there is a choice to buy put options in order to have a covered position that would protect from the potential downside risk. However, in naked position, such a hedge is not taken.
Tags: covered position, naked option, naked position
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