Covered Call
An options strategy where the holder of a long stock position sells a call option against it, generating income at the cost of capping upside.
In a covered call, you own 100 shares of a stock and sell one call option at a strike above the current price. The premium received immediately reduces your cost basis.
The trade-off: if the stock rallies past the strike, your shares are called away at the strike price, capping your gain. If the stock stays flat or falls modestly, you keep the premium as extra yield.
It is the most common entry-level options income strategy. The "covered" means the short call obligation is backed by the shares you already own, eliminating the naked-short risk.
Example
You own 100 shares of MSFT at $420. You sell a 30-day $435 call for $3.20 ($320 collected). If MSFT stays below $435, you pocket $320. If it surges to $450, you sell at $435 — still profitable, but you give up the $15 above $435.
Related Terms
Assignment
The process by which an option seller is required to fulfil their obligation — delivering or buying the underlying — when the buyer exercises.
IntermediateCall Option
An options contract giving the buyer the right to purchase the underlying asset at the strike price before or on expiration.
BeginnerCash-Secured Put
Selling a put while setting aside enough cash to buy the shares if assigned — collecting premium with the willingness to own the stock at the strike.
IntermediateLEAPS
Long-term Equity AnticiPation Securities — listed options with expirations longer than one year. Used for longer-horizon directional bets or low-cost covered-call strategies.
IntermediatePremium
The price paid by the option buyer to the option seller for the rights granted by the contract.
IntermediateStrike Price
The fixed price at which the option holder can buy (call) or sell (put) the underlying asset if they choose to exercise.
BeginnerVertical Spread
An options strategy involving the simultaneous buy and sell of two options of the same type and expiration but at different strikes, limiting both risk and reward.
Intermediate