What is Naked Call?

A naked, or "uncovered," call is an options strategy in which an investor sells a call option for a stock or security without actually owning the underlying security. Since the investor is selling the right to something that they do not own, it requires less collateral to sell a naked call than a covered call, in which an investor fully backs the call option with holdings of the underlying asset. As a result, naked call trading strategies are riskier than covered calls, because the investor must have sufficient funds to buy shares of the underlying asset to sell to the counterparty at the agreed on price in the event the counterparty buying the naked call chooses to execute the option agreement.