A person who is either A: Someone who is gay or bisexual and afraid to show it in public or B: Gay and tries to hide it by calling other people gay to seem 'cool' (straight).
A: Ben had always been a closet homosexual, but was afraid to tell anyone close to him.
B: Closet homosexual who is being crushed by the notion that being gay is bad: Dude, your so gay. Stop being gay, you fag.
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