Covered Bear

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.

BREAKING DOWN '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.

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RELATED FAQS
  1. Where do investors tend to put their money in a bear market?

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