Covered calls : Level 1

mehak.officiallink
Good Student
Posts: 31
Joined: Sat Mar 08, 2014 6:59 am

Covered calls : Level 1

Postby mehak.officiallink » Mon Oct 13, 2014 3:14 am

The value of the covered call is value of the underlying plus the value of short call.
In case the short call is exercised, the asset will have to be delivered , then why do we add the value of the underlying in determining the value of pur position ?

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Covered calls : Level 1

Postby edupristine » Mon Oct 13, 2014 6:45 am

We add the vale of underlying to compute covered call value because in covered call we are long the underlying asset. It means we have to buy the asset as a cover. Hence we add the value.


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