GLOSSARY // Options
Covered Call
A covered call is 100 shares of stock plus a call sold against them. The shares cover the short call's obligation: if the stock gets called away, they are delivered at the strike, so the position has no naked upside risk — just a cap on gains.
The premium collected is income for renting out the upside above the strike. It also lowers the position's breakeven by the premium amount. The cost is opportunity: in a sharp rally the shares go at the strike and the extra gains belong to the call buyer. The strategy performs best in flat-to-mildly-bullish tape and does nothing to protect against a real decline beyond the premium cushion.
You own 100 shares bought at $50 and sell one 30-day 55 call for $1.20, collecting $120. Breakeven drops to $48.80. If the stock closes above $55, the shares are called away at $55: $500 of stock gain plus $120 of premium, $620 max profit. If the stock sits at $51, you keep the shares, the $120, and can sell another call next month.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.