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Selling an option creates an the obligation of the seller to provide the option buyer with the underlying shares or futures contract for a corresponding long position for a call option or the cash necessary for a corresponding short position for a put option at expiration. If the seller has no ownership of the underlying asset or the corresponding cash necessary for execution of a put option, then the seller will need to acquire it at expiration based on current market prices. With no protection from the price volatility, such positions are considered highly vulnerable to loss and thus referred to as uncovered, or more colloquially, as naked. Naked options are attractive to traders and investors because they have the expected volatility built into the price.
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In addition to the advice to stay away from naked options, many investors are encouraged to be long stocks. The price the put holder has the right to sell the stock at is the strike price. The goal of selling naked out of the money puts is that price will close above your strike price at expiration and the put will not be exercised. Intuitively, if the market price is higher than the naked put strike at expiration, the holder will not want to sell stock at a price below the market price and the put will not be exercised.
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