Definition: Calm down. Naked shorting isn't really naked actually, it would make more sense to call it invisible because a naked short is a trade that doesn't exist. Short sales occur when someone borrows a stock from its owner, sells it, buys it back at a lower price, and pockets the difference. Naked shorts occur when the short seller doesn't bother to borrow the stock before he sells it. "Oh sure, I can get you that stock, no problem," he tells the buyer, and the transaction rides on nothing more than a promise. Sometimes the seller comes up with the stock, but sometimes he doesn't or worse yet, has no intention of even trying. Oh, and by the way, it's illegal.
Usage: "Bob McTeer, formerly of the Federal Open Market Committee, says: 'I didn't even know about naked shorts until recentlywhere you sell stock without even bothering to borrow it. That is even more absurd.'" (New York Times, Sept. 18, 2008)