Learn · Jun 2026
Covered Call, Explained
If you own 100 shares of something, a covered call is the simplest way to turn them into an income stream — as long as you're OK capping your upside.
What it is
You own at least 100 shares of a stock and sell one call option against them. You collect premium now; in exchange you agree to sell your shares at the strike if the stock rises above it by expiry.
The numbers
You own 100 shares bought at $48; the stock is now $52. You sell the $55 call for $1.00 ($100).
- Max profit: the gain up to the strike plus the premium = ($55 − $48) + $1.00 = $8/share = $800. Reached if the stock is at or above $55 at expiry.
- The trade-off: above $55 you stop participating — your shares are called away at $55 no matter how high it runs.
- Downside: you still own the shares, so you carry the full downside (the $100 premium offsets a little). Position breakeven drops to $47.
When to use it
When you're neutral to mildly bullish on a stock you already hold and want income, accepting that a big rally caps your gains. It's the second leg of the Wheel.
Common beginner mistakes
- Selling calls below your cost basis — you can be forced to sell at a loss.
- Selling through earnings and getting your shares called away on a pop.
- Picking a strike so close to the price that any rally caps you immediately.
How TickerRisk helps
Higher IV Rank means richer call premium; the options page shows the IV data you need, and the calendar flags earnings so you don't get called away on an event pop.
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