What are Covered Options?

Covered options meaning

If a trader buys/sells an option and simultaneously holds/shorts the underlying asset, this is referred to as a covered option. 

Covered option example: A trader sells the SBI option and simultaneously holds shares of SBI to deliver the shares when the buyer exercises the right.

This strategy is best used to hedge risks against positions in underlying assets.

Covered options strategies:

• Covered call
• Covered put
• Covered strangle