The article discusses the simplest strategy - the covered call where a single option is involved. This type of strategy is also known as `buy-write' strategy or covered write. Here, the investor holds a long position in an asset and writes call options on that same asset in an attempt to generate increased income from the asset. The characteristics and possible outcomes of this strategy are brought out in this article taking a stock option as example. The article also throws light on the covered put strategy.

Options are financial derivatives traded on organized exchanges. Option or choice is a derivative financial instrument whose market is growing fast. It is a contract between a buyer and a seller. Option gives a buyer the right (but not the obligation to buy or sell the contract) while the seller has an obligation to honor the contract.

Calls are called covered by owning the underlying security and puts are called covered with a short position in the underlying security while owning the asset. In other words, it is called covered position when option position is opened by selling an option and at the same time owning an equivalent position in the underlying security.

A `Covered Call' is an option contract, where an investor owns a security and sells call options on the same security. They are covered calls as long as the investor owns sufficient number of shares of the security for each call that is sold. The sold calls are covered because they can be exercised by selling the security to the covered call option holder at the strike price of call options.

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