Could somebody explain the fundamental difference between a call option and a covered call option?
Covered call is when you cover your call position. Covering your call position…That makes me think, when will a call option holder cover his call position. When the stock goes down you might not exercise your option…you have a limited loss here…
When you sell a call option, your loss potential in infinite…That time you might want to cover your call position…so, you buy a stock to save you on the armageddon day…Note that here the writer (the person who sells the cal option) earns an income in the form of option premium… This is my way of understanding it and avoiding memorizing the same time and again. This is not the exact way it should be…I ve just told you a trick to stick this thing into your mind. In fact, for definitions, you don’t need AF…You need it to make things and life simpler 
Blackjack nailed it: a covered call is a long position in the underlying and a short position in a call option.
A good exercise is to draw the payoff for a covered call, and compare it to the payoffs for long and short positions in put and call options; it’s equivalent to one of those (four): which one?
Thank you for fuelling me. This motivates me to dive deeper and not give up on my prep. It helps me push myself one step ahead
This was an easy one, but it took me close to 4 mins to draw the payoff diagram correctly. I am disappointed because it boils down to playing with straight lines. Should have done it a little quickly. To cut to the chase, it is equivalent to writing a put option.
My pleasure.
Yup.
As I said, it’s a good exercise. I’m a strong advocate of drawing pictures (payoffs for derivatives, supply and demand curves for econ, timelines for quant and fixed income, and so on).
(By the way, you come to the same conclusion if you look at put-call parity.)
That’s some insight. I’ll save this exercise for some other day. Thanks
You’re welcome.