A covered option strategy is an investment in which all short options are completely offset with a position in the underlying or a long option in the same asset. The loss potential with such a strategy is therefore limited.
A position is described as covered if the cash or asset to be delivered by the contractual obligation in the derivatives position is already held, e.g. if you sell a copper future and thereby become obligated to deliver 25 tonnes of copper you would be covered if you already held the copper. Not to be confused with margin.
Dealer and player working in concert to make sure that multiple bets are properly positioned.
Writing an option when the writer also own the underlying security on a one to one ratio. A short call is covered if the underlying security is owned. A short put is covered if the underlying security is also short in the account. A short call is covered if a long call of the same underlying security is owned in the same account with the same or lower strike. A short put is covered if a long put of the same underlying security is owned in the same account with a strike price equal to or greater than the strike of the short put.
a position of engagement where the opponent cannot score by direct thrust
A position of guard, an engagement of blades, where one is protected against a straight thrust. See CLOSED LINES.
Refers to a short option position in which the investor has another investment position which will meet the obligation of the option contract. A covered short call involves owning the underlying security or a security convertible into the underlying security. A covered put requires cash or a short stock position.
A derivative investment strategy in which the seller owns the underlying security. An investor constructs a covered call position by buying a security and selling a call option of the same security. A covered call is a market-neutral investment strategy that protects the investor from the downside of owning a stock, while still affording him some of the upside.
A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put.