What is a naked writer?

Also known as the exposed writer, the naked writer is the seller of investment opportunities that do not have enough financial resources to actually buy the asset sold. This type of situation sometimes occurs when the seller attempts to sell an option contract that is based on an asset that he doesn't actually own. This strategy is based on the potential for a naked writer to sell the possibility at a price that is high enough to actually get an asset from the owner, and then collects this price from the buyer. When the naked writer is successful, he can earn profit from a set of transactions without actually settling ownership.

shies with a naked writer is considered a risky business. For a buyer who is trying to obtain an option contract from the writer, there is a chance that the agreement will be forfeited before the contract is to be retrieved from the actual owner and then sells again for the CEWell, agreed between the buyer and the writer. The naked writer also takes a great risk, because the buyer may decide to fall into the purchase of a contract that would leave the writer without resources to honor the obligation to buy a contract from the owner. The owner of the contract also takes on a certain degree of risk when dealing with a naked writer, because there is a potential for loss of money due to the writer's failure on the agreement.

Contracts on options concluded by a naked writer may be structured as calls for calls or contracting contracts. Since the writer is left without real ability to ensure the opportunity, it means that defining the terms of contract contracts is very important. If the writer is not convinced that the basic asset will work in a certain way and that the buyer will be able to follow, when and if the right to purchase or SELL is exercised, this type of arrangement may be for all involved.

Although there is a great risk of associatedWith a naked contract obtained through a naked writer, there is also a considerable potential to make a lot of money from the organization. Under the best circumstances, the basic assets increase the value that is greater than anyone predicted. If this happens, the original owner will see a contract concluded by the expiry date, hopefully he will get a small return. The writer will also receive a profit after payment of the owner, because the sale price for the contract was sufficient to create more income than to complete the initial obligation to the owner. The buyer also benefits from obtaining an asset that has exceeded all expectations, allowing to sell this property for considerable profit.