What is a Covered Call?
A covered call is an income-generating strategy where you own 100 shares of stock and sell a call option against those shares. This allows you to collect premium income while potentially selling your stock at a higher price.
Strategy Components:
- • Long Position: Own 100 shares of stock
- • Short Position: Sell 1 call option (same stock)
- • Goal: Generate income from option premium
When to Use Covered Calls
✅ Good Scenarios
- • Neutral to slightly bullish outlook
- • Want to generate income from stock holdings
- • Willing to sell stock at higher price
- • Stock is range-bound or moving slowly
❌ Avoid When
- • Expecting large upward move in stock
- • Want to hold stock long-term
- • Stock is highly volatile
- • Bearish on the stock