Covered Call
Own 100 shares of a stock and sell a call option against them. This generates income from the premium while you hold the stock, in exchange for capping your upside at the strike price.
Payoff Diagram
How to Set Up This Trade
Own (or buy) 100 shares of the underlying stock. Sell one call option at a strike price above the current stock price.
Trade Setup — 1 Leg
When to Use This Strategy
You own the stock and expect it to stay flat or rise slightly. You are willing to sell your shares at the strike price. High IV means more premium collected.
Tips from the Pros
- 1
Sell calls at strike prices where you would be comfortable parting with the stock.
- 2
Stick to 30-45 day expirations for a good premium/time-decay ratio.
- 3
Consider rolling the call out and up if the stock approaches your strike before expiration.
Quick Reference
Max Profit
Premium received + (strike price - stock purchase price) per share.
Max Loss
Stock purchase price minus premium received (if the stock drops to zero).
Breakeven
Stock purchase price - premium received.
Best IV Environment
High IV
Time Decay (Theta)
Helps (positive theta)
Risk Level
Low RiskLearn More
Our courses cover this strategy with real trade examples and live market analysis.
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