Covered Call Strategy
A covered call is sold against 100 shares of stock you already own. You collect premium upfront and agree to sell the shares at the strike price if assigned. It is one of the most common income strategies because the downside is capped by the underlying position you already hold.
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How It Works
- 1
Own at least 100 shares of the underlying stock
- 2
Sell one out-of-the-money call per 100 shares at ~20-30 delta, typically 30-45 DTE
- 3
Collect premium immediately; keep it if the call expires worthless
- 4
If assigned, your shares are called away at the strike — you keep the premium plus the gain up to the strike
- 5
Roll the call out and up before expiration to continue collecting premium on shares you want to keep
Best For
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Frequently Asked Questions
What is a covered call?
A covered call is the simultaneous combination of owning 100 shares of a stock and selling one call option against those shares. The call is "covered" because you already hold the shares that would be delivered if assigned.
What is the maximum profit on a covered call?
Maximum profit is the premium received plus any appreciation up to the strike price. Upside beyond the strike is capped because the shares will be called away.
Is there downside risk?
Yes. The downside is the same as owning the stock outright, offset slightly by the premium collected. If the stock falls sharply, the premium cushions only a small portion of the loss.
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