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Explain why a naked short option position requires a margin. The seller of the option is exposed to the risk that the loss on the
Explain why a naked short option position requires a margin.
The seller of the option is exposed to the risk that the loss on the position exceedsthe proceeds from selling or writing the option. The clearinghouse assumes the risk that the seller of the option cannot make good on the obligation. Therefore, the clearinghouse requires that the option seller make a margin deposit to protect against losses. If the price moves against the option seller, additional margin deposit is required.
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