A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put. Bloomberg Financial Dictionary
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A position is described as covered if the cash or asset to be delivered by the contractual obligation in the derivatives position is already held, e.g. if you sell a copper future and thereby become obligated to deliver 25 tonnes of copper you would be covered if you already held the copper. Not to be confused with margin. Dresdner Kleinwort Wasserstein financial glossary
Financial and business terms. 2012.