Covered Call options strategy
A covered call holds shares and sells a call against them. The premium adds income, but gains above the strike are surrendered and the shares still carry downside risk.
- Market outlook
- Neutral to moderately bullish
- Construction
- Own 100 shares and sell one call option.
- Maximum risk
- Nearly the full downside of the shares, reduced by premium received.
- Maximum reward
- Premium plus gains up to the call strike.
- Breakeven at expiry
- Share purchase price minus premium received.
Strategy questions
- What is a Covered Call?
- A covered call holds shares and sells a call against them. The premium adds income, but gains above the strike are surrendered and the shares still carry downside risk.
- What is the maximum risk of a Covered Call?
- Nearly the full downside of the shares, reduced by premium received.
Risk note
Options are leveraged and expire. Model payoff at multiple prices and volatility levels in the Options Strategy Lab before considering a position.