Covered option transaction and covered option transaction

Purchase of an underlying asset (here mainly: share, currency) with simultaneous writing of a call option on the same reference base. – The prospect of profit in such a transaction is limited to the increase in value up to the exercise price of the option. In the classic option writer transaction, the underlying must be deposited as collateral. The buyer receives a premium for the risk of a decline in the price of the underlying. – If both the underlying and the call option are not related to a specific underlying, but to a derivative, this is referred to as a synthetic covered option. – In the case of synthetic covered options, there is no hedging against price losses of the underlying. However, any loss on the underlying is less than if the underlying had been purchased directly. In this case, the option premium thus limits a price loss of the reference base. – See option writer, covered option writer.

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