A covered call is a financial transaction market in which the seller of a call option has the appropriate amount of the underlying securities such as shares of a stock or other. If the trader buys the underlying asset at the same time he sold the call, the strategy is often called “buy-write strategy. In equilibrium, the strategy is the same payouts as writing a put option.
The long position in the underlying security, said the “cover”, as the shares can be delivered to the buyer of the call, if he chooses to exercise.
Write a prompt generated income in the form of the premium paid by the buyer of the option. And if the stock price rises or remains stable, then the writer is able to maintain this income as profit, although the gain may have been higher if not on a call have been posted. The risk of stock ownership is not eliminated. If the stock price falls, then the net position is likely to lose money.
