covered writer(redirected from Covered Writers)
The writer (or seller) of an option contract who either owns the underlying asset (for a call) or has sufficient cash to buy the underlying asset if need be (for a put). That is, a call option gives the holder (or buyer) the right but not the obligation to buy the underlying asset for the stated strike price. When the call is exercised, it poses little risk for the covered writer because he/she already owns the underlying asset and can simply sell it to the holder rather than needing to buy the asset at the current market price, which is usually higher than the strike price. Likewise, a put gives the holder the right but not the obligation to sell the underlying asset to the writer at the strike price. A covered writer is able to buy the underlying asset with no problem because he/she has the cash on hand. This eliminates the risk that he/she will have to sell other securities, perhaps at a loss, to raise the cash. See also: Covered Option, Uncovered Writer.
The seller or writer of a call option who owns the underlying asset that may be required for delivery. Covered writers are usually conservative investors seeking extra current income. See also buy-and-write strategy.