How it works
- Own at least 100 shares of a stock you are willing to sell.
- Sell to Open one call per 100 shares, usually out of the money.
- Collect the premium immediately.
- At expiration, one of three things happens.
Example: You own 100 shares of XYZ at $50. Sell a 1-month $53 call for $0.90. You receive $90.
Possible outcomes
- Stock stays below $53: the call expires worthless. You keep the shares and the $90. Repeat.
- Stock rises above $53: shares are called away at $53. Maximum gain is $300 stock gain plus $90 premium = $390.
- Stock falls: you keep the premium, which cushions the loss. Breakeven is $49.10, but the shares can still lose value.
Trade-offs and checks
- Upside is capped at the strike plus premium.
- Check earnings and ex-dividend dates before expiry. Early assignment risk rises before ex-dividend dates.
- Lower strikes pay more but are more likely to be assigned.
- Rolling: buy back the call and sell a later or higher one.
- Assignment can trigger taxable gains. Check tax rules for your account.
Profit at expiration: XYZ at $50, sell $53 call for $0.90
The solid line is the covered call and the dashed line is just owning the stock. You give up gains above $53 in exchange for premium that softens small declines.
Weekly vs monthly vs quarterly
| Weekly | Monthly | Quarterly | |
|---|---|---|---|
| Days | ~7 | ~30 | ~90 |
| Premium | Smallest per trade | Moderate | Largest per trade |
| Time decay | Fastest per day | Steady | Slowest per day |
| Effort | Up to 52 trades a year | About 12 | About 4 |
| Assignment | Re-decided weekly | Moderate | Can run far past strike |
| Suits | Active traders | Most income investors | Hands-off, low volatility |
Educational use only. This site is not financial, tax or legal advice. Investing involves risk, including loss of principal, and option strategies carry additional risks. Figures are illustrative estimates, not quotes or guarantees.