Covered Call Strategy
Neutral to BullishBeginnerIncome Strategy
Generate income by selling call options against stock you already own.
Covered Call Calculator
Total Income
$275.00
Max Profit
$775.00
Breakeven
$147.25
Return on Stock
5.17%
Annualized Return
22.31%
Stock Investment
$15000.00
Profit/Loss at Expiration
Position Summary
• Own 100 shares at $150 per share
• Short 1 call at $155 strike
• Premium received: $2.75 per share
• Total investment: $15000.00
Strategy Overview
Type:Stock + Options
Outlook:Neutral to Slightly Bullish
Risk/Reward:Limited Reward, High Risk
Complexity:Beginner
Description
A Covered Call involves owning 100 shares of stock and selling a call option against those shares to generate income. You collect premium upfront but cap your upside potential.
Setup
Own 100 Shares of Stock
Strikes: Current market price
Expiration: N/A
Sell Call Option
Strikes: Slightly out-of-the-money
Expiration: 30-45 days typically
When to Use
- •You own stock and want to generate income
- •You are neutral to slightly bullish on the stock
- •You are comfortable potentially selling at strike price
- •You want to lower your cost basis
Advantages
- +Generate consistent income from premiums
- +Lower effective cost basis of stock
- +Provides some downside protection
- +Simple strategy for income generation
Disadvantages
- -Limits upside potential if stock rallies
- -Full downside risk of owning stock
- -Requires significant capital (100 shares)
- -May miss out on big moves up
How It Works
1
Own 100 Shares: Purchase or already own 100 shares of the underlying stock.
2
Sell Call Option: Sell a call option with strike above current price, collect premium.
3
Generate Income: Keep premium if option expires worthless, or sell shares if assigned.
Key Metrics
Max Profit:Premium + (Strike - Stock Price)
Max Loss:Stock Price - Premium (if stock goes to $0)
Breakeven:Stock Price - Premium
Best Case:Stock at strike price at expiration
Assignment Risk:If stock above strike at expiration