What is a Covered Call?

A covered call is an options strategy where you own at least 100 shares of a stock and sell (write) a call option against those shares. It's called "covered" because your obligation to sell shares is covered by the shares you already own.

How Covered Calls Work

When you sell a covered call:

  • You own 100+ shares of a stock
  • You sell a call option with a strike price above the current stock price
  • You collect premium immediately
  • If the stock stays below the strike at expiration, you keep shares + premium
  • If the stock rises above the strike, your shares may be called away

    • Example: NVDA Covered Call

    Let's say you own 100 shares of NVDA at $130:

  • Current price: $130
  • You sell a $145 call expiring in 30 days
  • Premium received: $3.25 per share ($325 total)

    • Scenario 1: NVDA closes at $140 at expiration

  • You keep your 100 shares
  • You keep the $325 premium
  • Total gain: $325 + $1,000 (stock appreciation) = $1,325

    • Scenario 2: NVDA closes at $155 at expiration

  • Your shares are called away at $145
  • You keep the $325 premium
  • Total gain: $325 + $1,500 (stock gain to strike) = $1,825
  • You miss out on $1,000 above $145

    • Why Use Covered Calls?

  • Generate income from stocks you already own
  • Reduce cost basis by collecting premium
  • Lower risk compared to holding stock alone
  • Works in flat markets where stocks aren't moving much

    • Covered Call Calculator

    Use our free covered call calculator to analyze any trade before you execute. See premium income, annualized return, break-even price, and probability of keeping your shares.