Generally, a covered position is an outright long position or short position that is covered-i.e., protected, by an offsetting hedging position. The offsetting hedge is set up for the purpose of eliminating market risk and other risk exposures (e.g., credit risk) completely or to a minimal level.

For example, when an investor purchases a stock on expectation its price will rise, he is said to have taken a long (or covered) position. It is sometimes known as being “long the market”. “Bullish” investors – who are optimistic about the market-  will take a covered position, in anticipation of higher prices in the period to come. Covered position is usually taken by those investors who subscribe to the theory of “buying cheap and selling dear” (buying low and selling high). So the position holder owns (buys and holds) the asset (stock, bond, etc) and makes his profit when expectations come true with the price going up. Investors, basically, are covered-position holders. Therefore, an investor with a covered position receives delivery of the underlying asset (actual commodity, instrument, or share) if he holds the position into the delivery period (instead of offsetting it with a counter-contract).

Correspondingly, a covered position in a futures contract (generally a derivative) means that its holder makes profit if the price of that derivative rallies. Notwithstanding, the value of a put option, not the value of the underlying asset, shall be considered an action determinant, especially that the value of a put increases when the value of the underlying asset decreases.

Covered position is the opposite of naked position (uncovered position).