Uncovered options trading allows you to sell an Option and not hold any position in the underlying. This is also known as naked options trading. A trader can sell an Option without the shares of the underlying.
A naked or uncovered Option strategy is risky because it has a limited profit potential and a high loss potential. An uncovered Put Option will yield the highest profit if the strike price expires at less than the price of the underlying. When the underlying price drops to zero, it is considered a loss. Higher strike prices mean higher losses. Maximum profit for an Uncovered Call is achieved when the underlying price drops to zero. Maximum loss depends on the strike price.