Covered Bear

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DEFINITION of 'Covered Bear'

A trading strategy in which a short sale is made on a long position. A covered bear is a covered strategy where the investor shorts a stock that they already own. When an investor uses this strategy he feels that the stock is a bear stock and will decline in value. The risk involved in this strategy is limited because the investor already owns the underlying stock and can use those shares to cover.

INVESTOPEDIA EXPLAINS 'Covered Bear'

Investors can also write and purchase options as a type of covered bear strategy. Covered option trades afford investors more protection than a naked trade where the investor does not own the underlying security that he is hedging against. If the price of the underlying security doesn't fall, then the investor can let the option expire.

RELATED TERMS
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    An option strategy that involves writing the same number of puts ...
  2. Bear

    An investor who believes that a particular security or market ...
  3. Covered Call

    An options strategy whereby an investor holds a long position ...
  4. Bear Market

    A market condition in which the prices of securities are falling, ...
  5. Naked Position

    A securities position that is not hedged from market risk. Both ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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