What are Covered Options (Call/Put)?

Covered Options strategy consists of writing a call or put that is covered by an equivalent long/short stock position.

a. Covered Call

A covered call strategy involves writing a call option while holding a corresponding long stock position (Long Stock + Short Call). This strategy is used when you expect the stock price to remain neutral or rise slightly in the short term. By using a covered call, you can earn a premium from the call option while still benefiting from stock ownership. However, this strategy limits the profit potential of the long stock position, and the risk remains substantial if the stock price declines.

b. Covered Put

A covered put strategy involves writing a put option while holding a corresponding short stock position (Short Stock + Short Put). This strategy is used when you expect the stock price to remain neutral or fall slightly in the short term. By using a covered put, you can earn a premium from the put option while maintaining a short stock position. However, this strategy limits the profit potential of the short stock position, and the risk remains substantial if the stock price rises.

To explore all the strategies we offer along with their descriptions, please click here

Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options before trading options.