Covered calls financial definition of Covered calls. Covered calls finance term by the Free Online Dictionary.

Covered call

A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered Call

A position in which an investor short sells or writes an option contract, giving the buyer the ability to buy the underlying asset on demand while also owning the underlying asset. For example, an investor has a covered call position when he writes a call for 100 shares of AT&T and owns at least 100 shares of AT&T. This means that if the holder of the call exercises the option, the investor will be able to sell the shares without a problem. Investors often use a covered call strategy when they do not expect the option to be exercised and simply want to collect the premiums without exposing themselves to the risk of loss if the option is actually exercised.

Covered Call

What Does Covered Call Mean?

An options strategy in which an investor holds a long position in an asset and writes (sells) call options on that asset in an attempt to generate increased income from the asset. This strategy often is employed when an investor's short-term view of the asset is neutral. When an asset is bought long and an option is sold against the stock, the investor receives income from receiving the option premium. This is known as a buy-write.

Investopedia explains Covered Call

For example, let's say that you own shares in the TSJ Sports Conglomerate and are bullish about the company's and the stock's long-term prospects; however, in the short term you think the stock will trade relatively flat, perhaps within a few dollars of its current market price, say, $25. If you sell a call option on TSJ for $26, you earn the premium from the option sale but cap your upside potential at $26. One of three scenarios will play out: (1) TSJ shares trade flat (below the $26 strike price); the option expires worthless, and you keep the premium from the option. In this case, by using the buy-write strategy you have outperformed the stock. (2) TSJ share price drops; the option expires worthless, and you keep the premium. Again, you outperform the stock. (3) TSJ shares rise above $26; the option is exercised, and your upside is capped at $26, plus the option premium that you received. In this case, if the stock price exceeds $26 plus the premium that you received, your buy-write strategy has underperformed the TSJ shares.

Related Terms:
• Call Option
• Common Stock
• Long (or Long Position)
• Stock Option
• Strike Price

Mentioned in	?		References in periodicals archive	?		Financial browser	?		Full browser	?
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Buy Write
Buy-and-Write Strategy
covered call option
Covered Call Writing Strategy
Covered Option
Covered or hedge option strategies
Covered Put
Covered Put Option
Downside Protection
Graduated Call Writing
Lanzamiento de una opcion de compra cubierta
Naked Option
Option Mutual Fund
Options-Income Fund
Premium Income
Ratio Writer
Return If Exercised
Uncovered Call

Covered calls for your wealth journey: One of your key aims on your wealth journey is to generate a passive or portfolio income that will exceed your expenses.

Creating Cashflow Using Covered Call Strategy to Pay You Cash by Emlyn Scott / Finance and Investment community

Covered Calls and Naked Puts Ronald Groenke Keller Publishing 590 Fieldstone Dr.

Covered Calls and Naked Puts by Small Press Bookwatch

We use covered calls as a vehicle for our exposition of the design of financial products.

Behavioral aspects of the design and marketing of financial products by Shefrin, Hersh; Statman, Meir / Financial Management

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