Profit at the expiration from a covered is calculated as follows: Profit from a Covered Call = U T − U 0 − max + premium Value of a covered call at expiration can be calculated using the following formula: Value of a Covered Call = U T − max They pocket the option premium by writing the call options and hope that they expire out of the money. Investors write covered calls when they expect the price of the underlying stock to rise but stay below the exercise price (also called strike price). It is called a covered call because the potential obligation under the call option is covered by ownership in the underlying stock.Ĭovered call is just opposite to naked call, which is a strategy in which the option writer writes a call option without having any covering position in the underlying asset. Covered call is an option strategy in which the option writer writes a call option on an asset he already owns.
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