Question
What is the term used for options that do not have
offsetting positions?Solution
Naked or uncovered options are those which do not have offsetting positions, and therefore, are riskier. On the other hand, where the option writer has corresponding offsetting position in the asset underlying, the option is called covered option. Writing a simple uncovered (or naked) call option indicates toward exposure of the option writer to unlimited potential losses for earning more premium.
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