Question

. Describe in detail how you would undertake a covered call strategy. What would be the market view of someone who decided to use such a strategy?

Answer 1

In case of a covered call strategy, the expectation is that the price is expected to drop. So in such a case the investor would sell a call option and would benefit if the price falls. However in case the price rises, the investor would be exposed to unlimited risk.

So in case of a covered position, the call premium is brought along with the underlying asset on which the call has a reference. So in this way the gain in price of asset would counterbalance the loss incurred when the call is at the money.