covered call


The selling of a call option while simultaneously holding an equivalent position in the underlier. This is an attempt to take advantage of a neutral or declining stock. If the option expires unexercised, the writer keeps the premium. If the holder exercises the option, the stock must be delivered, but, because the writer already owns the stock, risk is limited. This is the opposite of an uncovered call, when the writer sells a call for a stock that he/she does not already own, a dangerous strategy with unlimited risk.

Use covered call in a sentence

It was a covered call, so I knew we did not have a lot to worry about because everything was taken care of.

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The covered call strategy was a brilliant suggestion for the financial adviser to make to the broker during the meeting.

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John knew the stock was starting to underperform and decided it was best to utilize a covered call. Since he already owned the shares, it was easy for him to sell the option.

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