Strategies
Covered Call
Also called: buy-write
A covered call pairs 100 long shares with one short call against them. The premium received lowers the cost basis and provides income; in exchange, upside above the strike is capped and the shares may be called away at expiration.
By put-call parity the position behaves like a short put at the same strike: it earns the premium plus appreciation up to the strike and keeps full downside exposure minus the premium. Strike and expiration choice trade income against the chance of assignment; many writers sell 30–45 day calls around the 20–30 delta.
Covered calls do best in flat-to-mildly-bullish markets with elevated IV. Selling when IV rank is above 50 collects more premium for the same probability of assignment, and rolling the call up and out defers assignment when the stock rallies through the strike.
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Frequently asked questions
What happens if my covered call is assigned?
Your shares are sold at the strike and you keep the premium. Your total gain is the premium plus the difference between your cost basis and the strike.