Covered Call
A covered call pairs 100 shares you own with a short call against them. You collect the premium up front; in exchange, you agree to sell your shares at the strike if the stock rallies through it. It converts sideways drift into income.
When it makes sense
- You own (or are happy to own) the shares and expect a flat-to-mildly-bullish stretch
- Implied volatility is elevated, making call premiums rich
- You'd genuinely be content selling your shares at the strike price
How it works
Own 100 shares, sell one call above the current price. Keep the premium no matter what. If the stock finishes above the strike, your shares are called away at the strike — your profit is capped at (strike − cost basis + premium).
Risk & reward
Maximum profit: premium plus any appreciation up to the strike. Maximum loss: the stock can still fall like any stock position — the premium only cushions the first dollars of decline. The real 'cost' is giving up upside beyond the strike.
Worked example
Own 100 shares at $50. Sell the 30-day $55 call for $0.90 ($90). Stock at $53 at expiration: keep shares and the $90 (a ~1.8% month). Stock at $60: shares are sold at $55 — you make $590 total but forgo the extra $500 of upside.
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