sethuramansid said:
Dear senior members,
What is meant by covered call? Is that a type of option? I heard from the books that covered call means you keep the underlying stock in your account and sell option(which not need to be squared off). But, when there is no delivery in option, how it works?
There's no such thing as a covered call. There is of course, covered
writing (selling) of a call, or a put.
That distinguishes it from an uncovered ('naked') writing of the call or the put.
When u write an option (a call or a put), you have "a sufficient holding in the underlying shares equivalent to (or greater than) that implied by the option, or in case of a put, sufficient cash to purchase the underlying shares at the exchange price" ("Traded Options" by Peter Temple)
In contrast, in 'naked' writing, u do not have sufficient stock ( in case of call ) or sufficient cash (in case of puts) in the event that the option holder exercises it against you.
I am not exactly sure of the option exercise process in India, but do know that retail investors can indulge in partially naked writing against hefty cash margins (Vince : am I right ?). I have done this myself on a number of occasions, with mixed results.
AGILENT