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A covered call involves selling a call option on a stock that you already own. By owning the stock, you’re “covered” (i.e. protected) if the stock rises and the call option expires in the money.
Covered calls are bullish by nature, while covered puts are bearish. [1] [2] The payoff from selling a covered call is identical to selling a short naked put. [3] Both variants are a short implied volatility strategy. [4] Covered calls can be sold at various levels of moneyness. Out-of-the-money covered calls have a higher potential for profit ...
Call options explained: How they work. ... However, there are a number of safe call-selling strategies, such as the covered call, that could be utilized to help protect the seller.
These strategies may provide downside protection as well. Writing out-of-the-money covered calls is a good example of such a strategy. The purchaser of the covered call is paying a premium for the option to purchase, at the strike price (rather than the market price), the assets you already own.
Payoffs from buying a butterfly spread Payoffs from selling a straddle Payoffs from a covered call. Combining any of the four basic kinds of option trades (possibly with different exercise prices and maturities) and the two basic kinds of stock trades (long and short) allows a variety of options strategies. Simple strategies usually combine ...
Selling covered calls often limits upside potential because the biggest winners will get called away (meaning they have to be sold). As the chart below shows, the ETF's total return has lagged ...
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