What is a coverd call?

What is a covered call?

A covered call is a neutral to bullish strategy where a trader typically sells one out-of-the-money (OTM) or at-the-money (ATM) call option for every 100 shares of stock owned, collects the premium, and then waits to see if the call is exercised or expires.

What are my outcomes?

When a covered call strategy is employed, the trader either:

Sees that they are ‘assigned’ when/if the underlying stock rises above their strike price. This means their stock is sold for the price of the strike.
Sees that their short call option expires worthless, when/if the underlying stock did not rise above their strike price

Why do it?

Traditionally, the covered call strategy has been used to pursue two goals:

Generate income from options premiums
Reduce the net cost of stock ownership
Buffer portfolio from market drawdowns

Discover the Benefits of the Covered Call Strategy

The covered call strategy offers a balanced approach for investors looking to enhance their portfolio's performance. By selling call options against owned stock, traders can generate additional income and potentially reduce the net cost of their shares. This strategy also provides a buffer against market drawdowns, making it a practical choice for those with a neutral to bullish outlook. Whether you are seeking to generate consistent income or looking for a way to protect your investments, trying out the covered call strategy could help you achieve these goals. Explore this method to see firsthand how it can benefit your trading activities.