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Finance Glossary

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Covered Call


See covered put. "Call" here refers to the famous call option land. Covered calls relate to 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 (also known as shorting a call.. .because nothing is better than having lots of terms for the same thing).

The point? You'd have to sell the stock for whatever you agreed to—even if the stock was now worth a lot more. You can imagine that if you had sold a call on some hot internet stock and it then skyrocketed... yeah. Not good.


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.