Define the Term “Covered Position” in Options Trading.
A covered position refers to a short option position (selling a call or a put) that is protected by a corresponding long position in the underlying asset or cash. For a covered call, the long asset covers the obligation to sell.
For a cash-secured put, the cash covers the obligation to buy. A covered position significantly reduces the risk profile compared to a naked position.
Glossar
Long Asset
Hedging ⎊ Taking a Long Asset position implies a bullish directional bias, expecting the underlying cryptocurrency or asset price to appreciate relative to the cost basis.
Risk Profile
Profile ⎊ A risk profile delineates an individual's or entity's willingness and capacity to take on financial risk in pursuit of returns.
Margin
Collateral ⎊ Margin serves as the collateral required to open and maintain a leveraged position in derivatives trading.
Underlying Asset
Futures Pricing incorporates the cost of carry, which in crypto markets includes funding rates derived from perpetual swap markets and the time value associated with holding the spot asset.
Covered Position
Hedge ⎊ A covered position, within cryptocurrency derivatives, signifies the concurrent holding of an asset and a short position in a related derivative, typically an option, to mitigate potential adverse price movements.