Asked 2w ago
I understand that a covered call is short position, and a protective put is long position. I am wondering about the contrasting position- what are shorting a covered call/longing a protective put called respectively?
A covered call is a call option where the writer of the option owns the underlying security. This is in contrast to a naked call where the option writer does not own the underlying security, and has to secure it through other means such as cash. Whether the call is covered or not does not matter to the buyer of the call option. When you are "shorting a covered call", you are essentially writing a call option to be sold, secured by shares.
A protective put is a put option that you purchase to protect your assets from excessive losses due to a fall in price. It acts like an insurance policy, where you pay the premium for the option, and your losses are limited should the price of the underlying security fall below the strike price of the option. Conversely, whether the put is protective or not has nothing to do with the option writer. Thus, "longing a protective put" simply means buying a put option as a hedging strategy against loss.