Covered Call
Description
Holding the underlying while selling a call against it, trading away upside above the strike for immediate premium income.
Setup
- Hold (or buy) one unit of the underlying.
- Sell one call option, typically out of the money, against that position.
Context
The default income strategy for a long-term holder who is neutral-to-mildly-bullish and willing to have the position called away at the strike.
Risk Profile
Loss is the same shape as owning the underlying outright, reduced by the premium collected; bounded only by the underlying reaching zero. Gain is capped at the strike plus premium collected.
Pros
- Generates income on an existing holding.
- Premium cushions a modest decline.
- Simple to understand and manage.
Cons
- Caps participation in a strong rally.
- Still carries the underlying's downside risk, less the premium.
- May trigger an unwanted sale if the underlying rallies through the strike.
Effect of Time
Time decay works in your favor on the short call, adding to the position's return each day.
Effect of Volatility
Rising implied volatility increases the premium collected up front, but also increases the odds of the call finishing in the money.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Long | Underlying | 1 | — | — | $84388.1700 | $84388.1700 | $0.0000 |
| Short | Call | 1 | $85000.0000 | 24 Sep 2026 | $67.5105 | $59.0717 | $8.4388 |
Estimated Cost to Assemble
An estimate of what entering this structure right now would really cost: filling every leg by crossing the spread (the ask when buying, the bid when selling) instead of at the mid-price, plus an estimated exchange fee. Real fees and fills can differ from this estimate.
Payoff & Greeks vs. Underlying Price
The Greeks curves are a Black-Scholes model using each leg's current implied volatility, holding time to expiry fixed -- not live exchange data at every price, which only exists at the current price (dashed line).
Payoff at Expiration
This structure's value and profit/loss at expiration, at a handful of specific prices: every leg's strike, every breakeven, the current spot, and the chart's own range.
| Underlying Price | Value at Expiration | Profit / Loss | Return on Cost |
|---|---|---|---|
| $68100.0000 | $68100.0000 | -$16220.6595 | -19.2% |
| $84320.6595 current breakeven | $84320.6595 | $0.0000 | +0.0% |
| $85000.0000 | $85000.0000 | $679.3405 | +0.8% |
| $101900.0000 | $85000.0000 | $679.3405 | +0.8% |