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What is covered stock strategy?

A covered stock strategy consists of writing a call or put that is covered by an equivalent long/short stock position.

Covered Call

A covered call strategy consists of writing a call that is covered by an equivalent long stock position (Long Stock + Short Call). It is a strategy when you expect the stock price to be neutral or slightly bullish in a short-term period. Using the covered call strategy, you can earn a premium from writing calls while at the same time appreciate all benefits of underlying stock ownership. However, it also limits the profit potential of a long stock position while the risk is still substantial if the stock price declines.

Covered Put

A covered put strategy consists of writing a put that is covered by an equivalent short stock position (Short Stock + Short Put). It is a strategy when you expect the stock price to be neutral or slightly bearish in a short-term period. Using the covered put strategy, you can earn a premium from writing puts while holding a short stock position. However, it also limits the profit potential of a short stock position while the risk is still substantial if the stock price goes up.


Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.

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