Covered Call
Neutral/Bullish StrategyUse Zuviz's free options visualizer to build this strategy instantly. Sell a call against 100 shares you own. Generate income while waiting for the stock to rise moderately.
⚡ Key Takeaways
- Market Outlook: Neutral to slightly bullish (income generation) \n
- Max Profit: Strike - stock price + premium received \n
- Max Loss: Stock can go to zero (offset partially by premium) \n
- Breakeven: Stock purchase price - premium received \n
- Best for: Generating income on stocks you own, lowering cost basis \n
- Greeks Impact: Positive Theta (premium decay helps), negative Delta on call
💡 Visualize this strategy in 10 seconds: Open Zuviz →
📊 Payoff Diagram
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🏗️ Strategy Structure
| Position | Action | Type | Strike/Price | Value |
|---|---|---|---|---|
| Stock | Own (Long) | 100 Shares | $100 | $10,000 |
| Option | Sell | Call | $105 | $2.00 |
Premium Collected: $2.00/share ($200)
Effective Cost Basis: $100 - $2 = $98
🧮 Key Calculations
🎯 When to Use This Strategy
- Already own stock: Want to generate income while holding
- Willing to sell: Happy to let shares go at the strike price
- Sideways market: Don't expect a huge rally
- Reduce cost basis: Lower your effective purchase price over time
- Wheel strategy: Combine with cash-secured puts for recurring income
📈 Greeks Impact
Delta (Δ)
Positive - You want the stock to rise.
Theta (Θ)
Negative (usually) - Time decay hurts long positions, helps short ones.
Vega (ν)
Depends - Long strategies want rising IV, short strategies want falling IV.
⚖️ Pros & Cons
Pros
- Generate income on held shares
- Reduce cost basis
- Hedge minor drops
Cons
- Capped upside
- Shares can be called away
- Downside risk of owning stock
📝 Real-World Example
Stock: Owning 100 shares AAPL at $150. Trade: Sell $160 Call for $3.00.
Income: $300. Max Profit: $1,300 (Stock gain + Premium). Max Loss: Stock crashing to 0.