Income · On holdings
Covered
Call
The classic income strategy for holdings you already own — collect premium by renting out your upside. Here's how it works and the trade-offs.
What it is
A covered call means selling a call option against a long position you already hold in the underlying (stock or futures). The position "covers" the call — if you're assigned, you deliver from your holding. You earn the premium as income, lowering your effective cost, in exchange for capping your upside at the strike.
Key facts
- Market view: neutral to mildly bullish — you don't expect a big rally soon.
- Construction: Hold the underlying + Sell 1 OTM call against it.
- Income: the call premium received.
- Max profit: (call strike − entry price) + premium received.
- Breakeven: entry price − premium received.
- Downside: you still own the underlying; the premium only cushions losses.
Worked example
You hold a position entered at 22,500 and sell the 22,700 call for 60 (illustrative):
- Breakeven: 22,500 − 60 = 22,440.
- Max profit: (22,700 − 22,500) + 60 = 260, if it expires at/above 22,700 (you cap out there).
- If it stays below 22,700, you keep the 60 premium and your holding.
When to use it
- You're holding the underlying and expect it to drift sideways or rise modestly.
- You want to generate regular income and lower your cost basis.
- IV is reasonably high, so the call premium is worth collecting.
Trade-offs to respect
- Your upside is capped — a strong rally past the strike costs you the gains above it.
- You still carry the full downside of the holding, only softened by the premium.
- Choose a strike that balances income vs the upside you're willing to give up.
Plan covered calls with live data
Pick strikes using TradePulse's live option chain, IV and Greeks to size income vs capped upside.
Related strategies
- Long Call — directional bullish exposure.
- Iron Condor — defined-risk neutral income.
- Theta — the time decay you collect as a seller.