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Covered Call

A strategy that involves buying stock shares and selling calls. If the calls are assigned, the investor must relinquish the shares.

The covered call can be established as one position or calls can be sold against an existing stock position.

Additional Comments:

A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. These generally limit the risk the writer takes because the stock does not have to be bought at the market price if the holder of the option decides to exercise it.

A type of call sold by an investor who owns 100 shares of stock; in the event the call is exercised, the investor has the shares to deliver, so that risk is lower than that with an uncovered call.

Related Terms:

Covered Put
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Position Limits
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