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Glossary Term: COVERED

Definition(s) for COVERED:


1. ) refers to 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.

2. ) 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.


See Also:
COVERED PUT, COVERED CALL, COVERED CALL WRITING STRATEGY, COVERED INTEREST ARBITRAGE, COVERED INTEREST RATE PARITY, COVERED OPTION, COVERED OR HEDGE OPTION STRATEGIES, COVERED POSITION, COVERED STRADDLE, COVERED WRITER, COVERED CALL OPTION WRITING, COVERED OPTION


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