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Cover

• The purchase of a contract to offset a previously established short position.

• Eliminating a short position by buying the securities shorted.

 
 Embedded terms in definition
 Contract
Offset
Position
Purchase
Securities
Short position
Short
 
 Referenced Terms
 12b 1 funds: Mutual funds that do not charge an upfront or back-end commission, but instead take out up to 1.25% of average daily fund assets each year to Cover the costs of selling and marketing shares, an arrangement allowed by the SEC's Rule 12b-I (passed in 1980).

 Average percent payout: The average of the percentage of a company's profits paid out in dividends to shareholders, typically calculated over the last five years. A high percent payout can be a danger sign. Recent payout figures higher than 50%, and higher than the average payout, may forewarn of a dividend cut. A dividend cut would likely cause the stock price to fall. Generally, the higher the payout ratio, the lower the expected growth rate for the company's EPS in the future.
Sometimes, although the dividend payout is more than earnings, the company has strong cash flow and can Cover the dividend in the short term. However, a company paying out dividends in excess of earnings on a recurring basis is a risky investment.

 Bank guarantee letter: Is a document by which an approved bank certifies that an put option writer or grantor has sufficient funds at the bank to Cover the write. The funds are equal to the exercised value of the put. This value is equal to the strike price multiplied by the number of shares. It effectively reflects an outright purchase of the underlying security at the strike level.

 Break even analysis cost volume profit analysis: Indicates the level of operations necessary to Cover all operating costs and the profitability associated with various levels of sales.

 Business risk: The risk to the firm of being unable to Cover operating costs.The risk that the cash flow of an issuer will be impaired because of adverse economic conditions, making it difficult for the issuer to meet its operating expenses.

 
 Related Terms
 Forward cover

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