Covered Call
A Covered Call holds long stock and sells an OTM call against it to earn premium income while capping upside at the strike.
At a glance
Strategy Snapshot
Market View
Sideways to mildly bullish on a holding you already own.
Net Cost
Stock cost − Premium received from call.
Legs
Long Stock + Sell OTM Call
Max Profit
(Call strike − Stock entry) + Premium received.
Max Loss
Stock falling to zero, partially offset by premium received.
Breakeven
Stock entry price − Premium received.
Build
Strategy Construction
Color-coded legs — emerald for long positions, rose for short positions. Strikes shown around reference spot 100.
- BUYLeg 1
1 × EQ @ 100
- SELLLeg 2
1 × 110 CE
Premium 2.00
Visualize
Payoff at Expiry
Conceptual payoff with reference spot = 100. Strikes and premiums shown are illustrative.
Sensitivity
Greeks Exposure
Net portfolio Greek exposure for a typical setup. Bars show directional sensitivity from −1 (short) to +1 (long).
Delta
Directional exposure to underlying price.
+0.70
Strong Long
Gamma
Sensitivity of Delta to price changes.
-0.20
Short
Theta
Time decay exposure (per day).
+0.25
Long
Vega
Sensitivity to implied volatility shifts.
-0.25
Short
Strengths
Advantages
Why traders use it
- Generates regular income on existing stock holdings.
- Lowers effective cost basis of the stock.
- Theta-positive in low to moderate volatility.
Trade-offs
Risks & Disadvantages
What can go wrong
- Upside is capped above the strike.
- Still exposed to full downside on the stock.
- Forced exit risk if assigned at strike.
Avoid
Common Mistakes
Watch out for
- Selling calls too close to ATM and getting called away frequently.
- Selling on stocks expected to rally sharply.
- Not rolling the call when tested.
AI Insight
LiveCovered Calls boost yield 1–2% monthly on slow-trending names. Sell 20–30 delta calls 30–45 DTE and roll up-and-out on breakouts to retain upside.
Generated by NextQuantLabs AI — for educational guidance only.
Questions
Frequently Asked
Will my stock be called away?+
If the price closes above the strike at expiry, the call is assigned and the stock is sold at the strike.
How often should I sell calls?+
Typically monthly — balancing premium income, theta acceleration, and management overhead.