Covered Writer


DEFINITION of 'Covered Writer'

An options seller who owns the underlying security represented by the options contract. A covered writer holds the underlying security as a hedge against the options contract. If the options contract is exercised, the covered writer can "cover" the contract because he or she holds the underlying security. Options are contracts that give the buyer the right but not the obligation to buy (call) or sell (put) shares at a particular price and future date.

BREAKING DOWN 'Covered Writer'

Covered options writers limit risk by owning the underlying security. The covered writer profits by receiving premiums paid by the purchaser of the options contract. Covered writing is generally more conservative that naked writing, where the options seller does not own the underlying security.

  1. Covered Call

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  2. Options Contract

    A contract that allows the holder to buy or sell an underlying ...
  3. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  4. Exercise

    To put into effect the right specified in a contract. In options ...
  5. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
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