Covered Call
Turn your stock holdings into a monthly income stream
Definition
A covered call is an options strategy where an investor who owns shares of a stock sells (writes) a call option against those shares. The investor collects the option premium immediately as income. If the stock stays below the strike price at expiration, the option expires worthless and they keep the premium. If the stock rises above the strike, the shares get called away at the strike price, capping the upside. It is one of the most popular income-generating options strategies.
Example
You own 100 shares of Microsoft at $350. You sell a $370 call expiring in 30 days for $5 ($500 total premium). If MSFT stays below $370, the option expires worthless and you keep $500 as income. If MSFT rises to $390, your shares are sold at $370, capping your gain — you miss the additional $20 gain but collected the $5 premium.
Related Terms
Frequently Asked Question
What is a covered call?
A covered call sells a call option against stock you already own. You collect premium income immediately. If the stock rises above the strike price, your shares are sold at that price, capping your profit.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.