Sell someone the right to buy your shares at a fixed price — and get paid upfront for it. Whether the stock goes up, sideways, or slightly down, you keep the premium. The cornerstone of income investing.
A covered call is when you own 100 shares of a stock and sell someone else the right — but not the obligation — to buy those shares from you at a specific price (the strike price) by a specific date (the expiration).
In exchange for giving them that right, they pay you a premium upfront. You keep that premium no matter what happens.
"Covered" simply means you already own the shares. You're not selling a naked call — the shares backing the position cover your obligation if the buyer decides to exercise.
This is what your profit or loss looks like at expiration depending on where the stock ends up.
Covered calls work best in these situations:
Track every covered call you sell with the free PII Trading Journal — built specifically for income options traders.