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COVERED OPTION Definition & Legal Meaning

Definition & Citations:

An OPTION position where the seller of the option already holds the UNDERLYING ASSET or cash that must be delivered if the buyer EXERCISES the option. Selling covered options is a relatively low RISK way of generating PREMIUM income since the cost of the underlying is already known or sufficient cash exists to cover the purchase. See also COVERED CALL, COVERED PUT, COVERED WRITER, NAKED OPTION.


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