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Covered call

Selling a call against stock you already own. You collect the premium and give up everything above the strike, which is a real trade, not free income.

Updated 2026-09-05

A covered call is selling a call option against shares you already own. You collect the premium immediately, and if the stock rises above the strike your shares are called away at that price.

It is widely described as generating income on a position, which is true and incomplete. What you have actually done is sell your upside above the strike for a fixed fee. In a flat or slowly rising market that is a good trade. In the month the stock doubles, you keep the premium and miss the move that would have mattered.

The risk profile is worth stating plainly: capped gain, effectively unchanged downside. If the stock falls, the premium softens the blow by a few percent and you still own the falling shares. It is not a hedge.

See also

  • Call option — The right to buy at the strike price. It gains value as the underlying rises, and it expires worthless if the underlying never gets there.
  • Option premium — What the buyer pays the seller for the contract. It is the option's price, and it is made of exactly two things: intrinsic value and time value.
  • Cash-secured put — Selling a put with the cash set aside to buy the shares if assigned. You are paid to agree to buy at a price you were happy with anyway.

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Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.

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