Covered Calls
What It Is
A covered call is an options strategy where an investor holds a stock and sells a call option against it to generate income.
Why It Matters
It provides steady income while reducing downside risk, but caps upside potential.
How It Works
- Investor owns 100 shares
- Sells a call option at a chosen strike
- Collects premium income
- Shares may be called away if price rises above strike
Key Components
- Premium income
- Strike selection
- Assignment risk
- Income vs upside trade‑off
Example
Selling a $50 call on a stock trading at $48 generates income but limits gains if the stock rises above $50.
Key Takeaways
- Covered calls generate consistent income.
- They reduce upside potential.
- Ideal for neutral to mildly bullish markets.