In the context of options, what does "selling covered" mean?

Selling covered refers to a strategy where the seller of an option owns the underlying stock. This approach is utilized primarily with call options, where the seller provides a right for the buyer to purchase the stock at a specified strike price. By owning the shares, the seller is protected against the obligation to deliver the stock if the buyer decides to exercise the option.

When the seller writes a covered call option, they can generate income through the premium received from the sale of the option while maintaining ownership of the stock. This strategy can also serve to enhance returns on a stock position or provide limited downside protection, as the premium collected offers some buffer against potential losses if the stock price declines.

In contrast, not owning the stock would expose the seller to significant risk if the option is exercised, and purchasing the option would not align with the definition of selling it. Giving away the stock implies transferring ownership, which does not fit the context of selling covered options, where the seller retains ownership throughout the transaction.