What is ‘Naked Position’
A securities position that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered (a covered position is hedged from market risk).
Explaining ‘Naked Position’
If an investor simply holds 500 shares of Ford, he or she has a naked position in Ford. If the investor wanted to cover this position, he or she could buy put option contracts, which would help protect against downward movements in the price of Ford shares.
Further Reading
- Are there benefits to being naked? the returns and diversification impact of capital structure arbitrage – www.tandfonline.com [PDF]
- The economics of naked short selling – heinonline.org [PDF]
- Naked short selling and market returns – jpm.pm-research.com [PDF]
- Leadership, hegemony, and the international economy: Naked emperor or tattered monarch with potential? – academic.oup.com [PDF]
- The impact of option strategies in financial portfolios performance: Mean-variance and stochastic dominance approaches – papers.ssrn.com [PDF]
- The efficacy of Regulation SHO in resolving naked shorts – www.emerald.com [PDF]
