Covered purchase option

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A covered call option ( English Covered Call ) is an option strategy in which one securities with options combined. The name buy-write strategy is occasionally used for this variant .

With a covered call, you buy ( buy ) an underlying asset and sell ( write ) a purchase option on it at the same time . This means that the open position in the call is “covered” by the underlying. The strategy yields solely from the sale of the option. For this purpose, the base value on the exercise date must not fall below the exercise price of the call option minus its value at the time of the sale (break-even price). For this reason, covered calls are more likely to be formed if one assumes an approximately unchanged price at the end of the term, ie only slightly rising or falling price of the underlying.

The covered call has an asymmetrical payout profile: Profits are generally limited to the exercise price of the call, whereas price losses in the underlying are borne in full from the break-even price.

A more conservative strategy to limit underlying risks is the protective put strategy .

Certificates that implement a covered call strategy are called discount certificates in the banking sector .

Payout diagram for a covered call
Basic functionality of a covered call

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