Definition of Covered Put

Covered Put

A put option position in which the option writer also is short the corresponding stock or has
deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the
option writer's risk because money or stock is already set aside. In the event that the holder of the put option
decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put
option.

Uncovered put

A short put option position in which the writer does not have a corresponding short stock
position or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the
put. Also called "naked" puts, the writer has pledged to buy the stock at a certain price if the buyer of the
options chooses to exercise it. The nature of uncovered options means the writer's risk is unlimited.

Covered call

A short call option position in which the writer owns the number of shares of the underlying
stock represented by the option contracts. covered calls generally limit the risk the writer takes because the
stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered call writing strategy

A strategy that involves writing a call option on securities that the investor
owns in his or her portfolio. See covered or hedge option strategies.

Covered interest arbitrage

A portfolio manager invests dollars in an instrument denominated in a foreign
currency and hedges his resulting foreign exchange risk by selling the proceeds of the investment forward for
dollars.

Covered or hedge option strategies

Strategies that involve a position in an option as well as a position in the
underlying stock, designed so that one position will help offset any unfavorable price movement in the other,
including covered call writing and protective put buying. Related: naked strategies

Imputation tax system

Arrangement by which investors who receive a dividend also receive a tax credit for
corporate taxes that the firm has paid.

Input-output tables

Tables that indicate how much each industry requires of the production of each other
industry in order to produce each dollar of its own output.

Poison put

A covenant allowing the bondholder to demand repayment in the event of a hostile merger.

Protective put buying strategy

A strategy that involves buying a put option on the underlying security that is
held in a portfolio. Related: Hedge option strategies

Put

An option granting the right to sell the underlying futures contract. Opposite of a call.

Put an option

To exercise a put option.

Put bond

A bond that the holder may choose either to exchange for par value at some date or to extend for a
given number of years.

Put option

This security gives investors the right to sell (or put) fixed number of shares at a fixed price within
a given time frame. An investor, for example, might wish to have the right to sell shares of a stock at a certain
price by a certain time in order to protect, or hedge, an existing investment.

Put price

The price at which the asset will be sold if a put option is exercised. Also called the strike or
exercise price of a put option.

Put provision

Gives the holder of a floating-rate bond the right to redeem his note at par on the coupon
payment date.

Put swaption

A financial tool in which the buyer has the right, or option, to enter into a swap as a floatingrate
payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.

Put-call parity relationship

The relationship between the price of a put and the price of a call on the same
underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the stock
and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the
exercise price. The call value equals C=S+P-PV(k).

Throughput agreement

An agreement to put a specified amount of product per period through a particular
facility. For example, an agreement to ship a specified amount of crude oil per period through a particular
pipeline.

Transferable put right

An option issued by the firm to its shareholders to sell the firm one share of its
common stock at a fixed price (the strike price) within a stated period (the time to maturity). The put right is
"transferable" because it can be traded in the capital markets.

Uncovered call

A short call option position in which the writer does not own shares of underlying stock
represented by his option contracts. Also called a "naked" call, it is much riskier for the writer than a covered
call, where the writer owns the underlying stock. If the buyer of a call exercises the option to call, the writer
would be forced to buy the stock at market price.

Throughput contribution

Sales revenue less the cost of materials.

Put Option

A contract that gives the holder the right to sell an asset for a
specified price on or before a given expiration (maturity) date

computer-aided design (CAD)

a system using computer graphics for product designs

computer-aided manufacturing (CAM)

the use of computers to control production processes through numerically
controlled (NC) machines, robots, and automated assembly systems

computer integrated manufacturing (CIM)

the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system

input-output coefficient

a number (prefaced as a multiplier
to an unknown variable) that indicates the rate at which each
decision variable uses up (or depletes) the scarce resource

throughput

the total completed and sold output of a plant during a period

Put

An option to sell a stipulated amount of stock or securities within a
specified time and at a fixed exercise price. See Call.

Puttable bond

A bond that allows the holder to redeem the bond at a
predetermined price at specified future dates. The bond contains an embedded
put option; i.e., the holder has bought a put option. See Callable bond.

put option

Right to sell an asset at a specified exercise price on or before the exercise date.

Full-Employment Output

The level of output produced by the economy when operating at the natural rate of unemployment.

Impute

To assign a value to a good or service in place of a market value that is not available.

Imputed Rent

The value of consumption services obtained by owning one's house rather than having to pay rent.

National Output

GDP.

Output Gap

The difference between full employment output and current output.

Potential Output or Potential GDP

Output produced when the economy is operating at its natural rate of unemployment.

Putaway

The process of moving received items to storage and recording the related
transaction.

Put Option

Contract that grants the right to sell at a specified price at some time in the future.

Naked option strategies

An unhedged strategy making exclusive use of one of the following: Long call
strategy (buying call options ), short call strategy (selling or writing call options), Long put strategy (buying
put options ), and short put strategy (selling or writing put options). By themselves, these positions are called
naked strategies because they do not involve an offsetting or risk-reducing position in another option or the
underlying security.
Related: covered option strategies.

contribution margin ratio

the proportion of each revenue dollar remaining after variable costs have been covered;
computed as contribution margin divided by sales

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