What is a Covered Call?

Covered Call Definition. A Covered Call is an options strategy in which an investor holds a long position in an asset (security, commodity or currency) and sells (writes) call options on that same asset in order to create additional income. The strategy is appropriate if the investor believes that in the short-term horizon, his asset value in the market will remain flat or neutral. For example, you may be long in a particular currency that is stable in a ranging market. If you sell calls at a strike price above your present value, you pocket the premiums as additional income. However, you have “capped” your gain potential at the level of the strike price. The strategy can also be used to write short options. A Covered Call is also known as a “buy-write”.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.