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Finance Glossary

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Covered Call


See covered put, above. "Call" here is from the famous call option land. Covered calls relate to writing or selling a call option. That is, you are selling to someone the right to buy a stock from you at a given price by a certain deadline, aka, shorting a call. You can imagine that if you had sold a call on some hot internet stock, and it then went to the moon (up a lot), you would have gotten killed. Example: Yahoo came public at $22. For $3 a share you sold someone the right to buy the stock at $30 at some point in the next 8 months. The stock then goes to $200 five months later. They stretch out their open sweaty palm and say, "Okay, deliver unto me said shares." You then have to go out and buy them for $200. Each. Ouch.