Covered call

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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.
References in periodicals archive ?
To generate additional returns above the dividend income earned on the portfolio, The Company engages in a selective covered call writing program.
The target fund makes investments in high-yield bonds, convertible bonds and equities, which includes covered call writing.
In turbulent markets, such strategies as protective puts and covered call writing may address many of the risk management objectives for insurers.
After discussing how market efficiency and emotions can sabotage investment performance (the latter the province of the field of behavioral finance), he details newer portfolio-enhancing strategies: enhanced indexing, protected leverage, covered call writing, portable alpha, hedge funds and derivatives.
However, there are conservative options strategies, such as covered call writing.
Investors usually consider covered call writing to be a more conservative strategy than the outright purchase of common stock because the downside risk is reduced by the premium received for selling the call.
Uncovered (naked) call writing differs from covered call writing because the investor does not own the shares of the common stock represented by the option.
The survey reveals that covered call writing is the most important objective of investors who use options.
A primary incentive for covered call writing is to increase the income from a portfolio.
invests in the common shares of the six largest Canadian banks with selective covered call writing in order to generate additional distributable income.