Naked option selling
Selling an option without a position in the underlying capable of covering the obligation.
How to read the number
The seller receives the premium immediately and takes on an obligation whose size is not even roughly known at the moment of the trade.
When the metric lies
The gain is capped at the premium, the loss is not. Collateral requirements rise as the market moves against the position, so the forced close lands on the worst part of the move.
Also known as: uncovered option writing