Naked option means the short party do not own any asset when he writes an option.

Say you write a call, when you write a call option, you have the risk exposure that the option will be in the money at maturity so that you have to deliver a stock when your counter-party come to exercise.

If you have a stock in hand, you position is fully covered, on the contrary, if you do not have any stock on hand, which means your fully exposed to the risk, in this case you are "naked" to risk. This is what naked option means.

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