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Glossary Term: COVERED OPTION

Definition(s) for COVERED OPTION:


1. ) Opposite of naked option, it refers to a call option sold short by an investor owning the underlying stock. If the option is later exercised against the short seller of the option, the seller is covered by the stock that is owned.

2. ) An option whose writer (seller) maintains the appropriate opposing position in the underlying security.

3. ) An open short option position that is fully offset by a corresponding stock or option position. That is, a covered call could be offset by long stock or a long call, while a covered put could be offset by a long put or a short stock position. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements. See also Uncovered call option writing and Uncovered put option writing



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