Strategy Overview
Low RiskBeginner FriendlyNeutralBullish
A covered call is a conservative income strategy where you sell call options against shares you already own. This strategy generates premium income while potentially selling your shares at a profit if the stock rises above the strike price.
Max Profit
Limited to premium + (strike - stock price)
Max Loss
Stock price - premium received
Breakeven
Stock purchase price - premium received
Probability
~70% win rate
hist. est.
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Example Setup Calculator
$
Credit Received
$250
Max Profit
$750
Max Loss
$9750
Breakeven
$97.50
Strategy Components
SELL OTM CALL
Sell OTM call against 100 shares owned
When to Use
- You own shares and want to generate income
- You are neutral to slightly bullish on the stock
- You are willing to sell shares at the strike price
- You expect low volatility
Best Market Conditions
- Low volatility
- Sideways to slightly bullish markets
- High IV rank for better premiums
Best Practices
- Choose strikes 1-2 standard deviations above current price
- Target 30-45 DTE for optimal time decay
- Consider rolling if stock approaches strike
- Avoid earnings and dividend dates
Ready to Trade?
Review Covered Call and practice it in paper trading with the school workflow.
Paper Trading