Covered Calls
Generate income from shares you already own. This is the second building block that pairs naturally with cash secured puts.
How covered calls work
A covered call means you own shares and sell someone the right to buy them at a specific price. You collect premium upfront. If the stock rises above your strike, you may have to sell your shares at that price. Your shares cover the obligation.
Possible outcomes
There are three ways a covered call can end. The stock stays below your strike and you keep shares and premium. The stock rises above your strike and you sell shares at a profit plus keep the premium. The stock drops and you still own shares, but the premium softens the loss.
When to use this strategy
Sell covered calls when you own shares you would be willing to sell at a higher price. Always choose strikes above your cost basis so assignment means profit. Use this when you expect the stock to stay flat or rise slowly.
Choosing your strike price
Always pick strikes above your cost basis. That way, assignment means you sold at a profit. Higher strikes give you more upside but pay less premium. Lower strikes pay more but cap your gains sooner. Find the balance that fits your goals.
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