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Covered writing |
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Covered writingIn the case of call writing, covered means having a holding of shares at least equal to that implied by the short call option position, and in the case of put writing, covered means having a cash sum sufficient to take up the underlying security if assigned on the short put position.Similar MatchesCovered or hedge option strategiesCovered or hedge option strategiesStrategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying. Related: Naked strategies Uncovered optionsUncovered optionsSee: Naked options Covered optionCovered optionOption position that is offset by an equal and opposite position in the underlying security. Antithesis of naked option. Covered combinationCovered combinationA strategy in which one call and one put with the same expiration, but different strike prices, are written against each 100 shares of the underlying stock. Example: writing 1 XYZ Jun 50 call and 1 XYZ Jun 55 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock. CoveredCoveredA 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. Further SuggestionsuncoveredCovered position Uncovered interest parity Covered writer Covered Straddle Write Covered interest rate Covered position Covered call Covered Straddle Covered call writing strategy covered straddle Covered interest arbitrage Covered interest parity Covered interest arbitrage Uncovered call writing covered warrant Covered Interest Rate Parity Uncovered Put writing |
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