Naked Option

Categories: Options, Investing and Trading, Stocks, Legal, ,

When you write, or sell, a call option but don't own the underlying instrument, such as a stock in the case of an equity option, the option is described as naked. Similarly, you write a naked put if you don't have enough cash on hand or in liquid investments to purchase the underlying instrument. Because you collect a premium when you sell the option, you may make a profit if the underlying instrument performs as you expect, and the option isn't exercised. The risk you run, however, is that the option holder will exercise the option. In the case of a call, you'll then have to buy the instrument at the market price in order to meet your obligation to sell. Or, if it's a put, you'll have to come up with the cash to purchase the instrument. If that price of the underlying has moved in the opposite direction from the one you expected, meeting your obligation could result in a substantial net loss. Because of this risk, your brokerage firm may limit your right to write naked options or require that you write them in a margin account.

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Nonprofit

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Charitable, cultural, and educational organizations that exist for reasons other than providing a profit for its owners, directors, or members are nonprofit organizations. However, these organizations can generate income to pay for their activities, salaries, and overhead by charging for services, making investments, and soliciting donations and memberships. A nonprofit arts center, for instance, may charge patrons for tickets and event subscriptions. Nonprofits incorporate in the states where they operate and are exempt from the state income taxes that for-profit corporations must pay. Some but not all qualify for federal tax-exempt status under section 501(c)(3) of the internal revenue code. Contributions to those qualifying organizations are tax deductible, though tax rules govern the percentage of your income you may deduct for gifts to different types of nonprofits.In exchange for these tax benefits, nonprofits must comply with some of the same financial reporting rules that for-profit corporations follow. For instance, nonprofits generally must follow corporate governance rules and make their financial reports available to the public.

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Naked Option

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Nonprofit

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