A Covered Call is an option strategy in which the investor sells a call option against the underlying security and simultaneously purchases in the same amount a call option on the same underlying security. The investor then receives a premium as compensation for writing the call option. Typically, this compensation will be an amount greater than the premium he receives for the covered call option. The investor can also decide to close the covered call position at any time without incurring any additional losses.In the world of investing, hedge funds are often seen as the most financially powerful. Financial hedge funds have been able to produce some remarkable returns for the investors. One of the many investment vehicles for hedge funds is covered call writing.Investing in uncovered call options is a riskier option in the sense that, if the market moves in the wrong direction, if the underlying stock is declining rapidly, if the trader is not correctly positioned, or the trader simply misjudges the potential of the trade, then the investor would be long a stock, but short a put option, and would lose money. Covered call options are also inherently more complicated, requiring the investor to hedge his position by selling a put option.
