Definition
A covered call is a conservative income strategy where an investor who owns shares sells call options against that position. This generates premium income but caps upside potential if the stock rises above the strike price. It's popular for generating additional returns in flat or mildly bullish markets.
Formula
Max Profit = (Strike - Stock Cost) + Premium | Max Loss = Stock Cost - Premium
Example
You own 100 AAPL shares at $150 and sell a $160 call for $3. You keep $300 premium but must sell at $160 if assigned.
FAQ
What is Covered Call?
An options strategy where you sell calls against stock you own.
How do you calculate Covered Call?
A common formula for Covered Call is: Max Profit = (Strike - Stock Cost) + Premium | Max Loss = Stock Cost - Premium
Why is Covered Call important?
Covered Call helps investors evaluate options and make more informed decisions.