[U]
Underwriting – the process of a firm raising money through the release of a security. The investment banking firms responsible for the release of a stock are called the underwriters. See also Investment Banking and Initial Public Offering.
Uncovered Call – a short call option position in which the writer does not own shares of the underlying stock represented by his option contracts. Also called a “naked” call, it is much riskier for the writer than a covered call, where the writer owns the underlying stock. If the buyer of a call exercises the option to call, the writer would be forced to buy the stock at market price.
Uncovered Put – a short put option position in which the writer does not have a corresponding short stock position or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put. Also called a “naked” put. The writer has pledged to buy the stock at a certain price if the buyer of the options chooses to exercise it. The nature of uncovered options means the writer’s risk is unlimited.
Underlying Security – Options: the security subject to being purchased or sold upon exercise of an option contract. For example, P&G stock is the underlying security to P&G options. ADRs: The class, series and number of the foreign shares represented by the depositary receipt.
Underwriter – a firm that buys securities from the issuer and then resells them to investors. The usual practice is for one or more investment bankers to form a syndicate to buy a corporation’s new issue and then sell the issue to individuals and institutions–commonly called a “firm commitment underwriting”. In this type of underwriting, the underwriter has committed to the issuer that it will receive the proceeds. The underwriter is technically taking on risk by buying all the shares from the issuer, although in practice the underwriter does not hold the securities long. They are resold very quickly. The underwriting group acts to stabilize the price for a period after it begins trading.