An options trading strategy whereby an investor buys a share of stock or a basket of stocks (e.g., an index ETF) and writes (sells) call options to cover the underlying stocks or basket of stocks. This strategy is mainly used to enhance portfolio returns and to decrease equity volatility, usually in down markets. The option premium received would compensate the price decline in the underlying stock. In short:
Buy-write = long stock + short calls
It is also known as a covered call.
Comments