Dictionary.net

a put or call option for which the seller or buyer has no underlying security position

a put or call option for which the seller or buyer has no underlying security position

An opportunity to buy stock at a fixed price, offered by a seller who does not own the stock to back up the promise. If the buyer wants to exercise the option, the seller must purchase the stock at market price to make good on the offer.

When the seller does not own the cash or asset sold that has to be paid if a contract is exercised.