What is uncovered or naked options trading?

Uncovered options meaning

Uncovered options trading is a strategy where you sell an option without holding a position in the underlying asset. It is also called naked options trading. The trader sells an option without owning the shares of the underlying asset.

An uncovered or naked option strategy is inherently risky because it has limited profit potential but significant loss potential.

The maximum profit on an uncovered Put Option is when the price of the underlying closes above the strike price at expiration. The maximum loss is when the price of the underlying asset falls to zero. The higher the strike price, the higher the potential loss.

In the case of an uncovered call, the maximum gain is when the price of the underlying falls to zero, while the maximum loss is unlimited and depends on how high the underlying closes above the strike price.