A more thorough explanation:

Definition: An uncovered option, also known as a naked option, is a type of options contract where the seller does not hold the underlying asset or security. This means that the seller is exposed to unlimited risk if the option is exercised.

Example: Let's say that John sells a call option for XYZ stock, but he does not actually own any shares of XYZ. If the option is exercised, John will have to purchase the shares on the open market at the current market price and sell them to the option holder at the strike price. If the market price of XYZ rises significantly, John could potentially lose a lot of money.

Explanation: This example illustrates the risk involved in selling an uncovered option. Because John does not own any shares of XYZ, he is essentially betting that the stock price will not rise above the strike price of the option. If it does, he will have to purchase the shares at a higher price and sell them at a lower price, resulting in a loss. This is why selling uncovered options is generally considered to be a high-risk strategy.