Covered call
TradingDefinition
Selling call options on stock you already own. Generates premium income but caps upside if the stock rallies through the strike. Popular conservative income strategy in flat-to-slowly-rising markets.
Best for stocks you're neutral-to-mildly-bullish on. Bad in roaring bull markets (you're forced to sell at the strike, missing the upside) and only marginally helpful in crashes (premium is small consolation for a 30% drawdown).
Best for stocks you're neutral-to-mildly-bullish on. Bad in roaring bull markets (you're forced to sell at the strike, missing the upside) and only marginally helpful in crashes (premium is small consolation for a 30% drawdown).
Example
You own 100 shares of XYZ at $100. You sell a 30-day $105 call for $2 premium. If XYZ closes below $105, you keep the $200 and the stock; if above $105, the buyer exercises and you sell at $105 — total proceeds $107 (the strike + the premium).