Question

Hello, could someone help me with understanding what is covered call? And how to interpret it and differentiate it from protective option?

Answer 1

covered Call: Lets say you already hold along position in a particular asset and you sell call of same asset to get protected from downside risk and generate income for yourself. here in you are neutral or bearish on stock.

Protective option: Here the investor is bullish, but he want to hedge risk from downside protection, hence he uses the strategy of protective put to protect unrealized gains. hence in such cases, the purchase of put option is useful and notional loss can be minimized.

I hope the difference is clear now. in case you need more explaination, pls let me know.