Definition
A naked put — also called an uncovered or cash-secured put — is the sale of a put option when the writer does not hold a short stock position or a long put to offset the obligation. By selling the put, the trader collects a premium and accepts the duty to buy the underlying at the strike price if the buyer exercises.
The strategy is "naked" because nothing hedges the downside. If the stock falls well below the strike, the writer is still obligated to buy at the higher strike price, absorbing the difference.
Why it matters
How it works
The writer sells a put at a strike where they would be content to own the shares. If the stock stays above the strike at expiration, the put expires worthless and the writer keeps the full premium. If the stock falls below the strike, the writer is likely assigned and must purchase the shares, with the premium reducing the effective cost basis.
Disciplined practitioners only write puts on stocks they genuinely want to own and size positions so that assignment would not overload the portfolio.