contract backed by owning the stock underlying the option. Assume the owner of 500 shares of XYZ writes (sells) 5 XYZ call options. The seller now has a covered option position. If the price of the stock rises and there is an exercise of the option, the seller has the stock to deliver to the purchaser. If the seller did not own the shares, he or she would be termed a naked writer.
call option backed by the security underlying the option contract. The writer, or seller, of the option collects a premium for writing the option, and has the securities to deliver if the option is exercised. Contrast with naked option
option contract backed by the shares underlying the option.
option contract backed by the shares underlying the option. For instance, someone who owns 300 shares of XYZ and sells three XYZ call options is in a covered option position. If the XYZ stock price goes up and the option is exercised, the investor has the stock to deliver to the buyer. Selling a call brings a premium from the buyer.
