Cover Call

A cover call, or covered call, is an investment strategy involving two transactions. First, you buy stock (or use stock you already own). Second, you sell a call option against that stock. The combination of being long the stock and short a call option is called "covered call." It is also known as a "buy-write" transaction (because you buy the stock and write (sell) the option).

The phrase cover call is really more of a typo of the correct phrase "covered call". To be honest, we're not sure why so many people say cover call; it's kind of bizarre and not really correct to use "cover" as a short version of "covered".

Let's look at the profit and loss graph for an example cover call. Let's say you buy 100 shares of stock at 46 and then sell a 50-strike call for 3. Your break-even is now 43 and your max profit is +$700 (you make $300 from option premium, and $400 from upside on the stock). This covered call is better than owning the stock outright for all stock values of 53 or less. Above 53 you'd be better off just owning the stock.

cover call

For more information on covered calls, please see the covered call definition page.

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