covered option
- noun
- Specialized
:
opción cubierta
- When using a covered option, the seller is more secure because they own the underlying stock.
Examples
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Such are the benefits of selling covered options when premiums are very high.
Blog text (22) -
A bit similar to the difference between people writing naked vs. covered options - but maybe best we don't go there. :)
Blog text (6) -
Investors often prefer a covered option strategy because it reduces risk while generating income.
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Trading in covered options can be a safer way for investors to profit from market fluctuations.
Antonyms
- Specialized
To sell a right to buy or sell a stock without owning it and risk large losses
How Risky
- Specialized
3
6.6
- Specialized
- Specialized
127
7.7
- Specialized
Surface Forms
Morphology
The adjective 'covered' plus 'option' conveys a general idea of an option that is backed or protected, so a learner could guess it refers to an option with some form of backing. However, the specific financial sense — that the seller holds the underlying shares or assets to meet the obligation — is technical and not fully predictable from the everyday meanings, making the expression only partially transparent.
Etymology
Covered option comes from a simple image: an option that is 'covered' because the seller already owns the shares that might have to be sold if the buyer asks. So a covered option means an option sold by someone who owns the stock, and this lowers their risk compared with selling an option without the shares.