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Introduction and the Use of Covered Call

1. What is a Covered Call strategy?

A Covered Call consists of a stock position and a call option position. If you hold the underlying stock and short the corresponding call option, you have created a Covered Call strategy.

It should be noted that the number of shares of stock position must be the same as the number of shares implied by the option contract size. In other words, if you short a call option of company ABC, and the contract size of that option is 100, then you need at least 1 * 100 = 100 shares to form a Covered Call strategy.

The option contract size of most US stock options is usually 100.


2. What is the margin requirement for a Covered Call strategy?

Generally, margin requirements for Covered Call position is lower. Margin is only required for the underlying stock position in a Covered Call strategy, waiving the margin requirements for the option position. When you hold the underlying stock and place an order to sell an option contract, no margin is required for this option order and therefore will not impact your purchasing power.


Please note the market price of the short call options within the covered call positions may affect the net asset value and the risk level of the account. The account may be subject to margin call and forced liquidation due to the price fluctuation of the short call options.

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