Knowledge

Covered Call Option

An option strategy where the investor owns a stock and writes a call option on the same amount of the stock. If the holder exercises the option, the stock owner must deliver the stock. This strategy is used if the stock owner believes that the stock price may decline in which case the holder will not exercise and he or she keeps the premium. If the price of the stock goes up and the option is exercised, the risk is minimal as the writer already owns the stock.