covered call
DefinitionThe 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.
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Related Terms
covered option, naked call, uncovered option, short call option, graduated call writing
covered call appears in the definitions of these other terms on BusinessDictionary.com
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