An option position sold without an offsetting position in the underlying asset, exposing the seller to potentially large losses.
A naked (or uncovered) option is one that is sold without holding an offsetting position in the underlying asset or a protective option leg. Selling a naked call exposes the trader to theoretically unlimited losses if the underlying rallies sharply, while selling a naked put carries substantial risk if the underlying falls significantly. Because of this risk, naked option selling requires higher margin and is generally recommended only for experienced traders with strict risk management in place.
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