Covered Calls — Income from Your Stock Holdings
Overview
A covered call sells upside potential on shares you own in exchange for immediate premium income. It's one of the most popular and conservative options strategies. Browse the stocks hub to find quality holdings worth writing calls against, and estimate your payoff with the options profit calculator. Log every covered-call cycle in your trading journal to track performance over time.
Key Takeaways
- Sell 1 call per 100 shares owned. You collect premium but cap your upside at the strike price.
- Best in: sideways to slightly bullish markets. Worst in: strong rallies (capped gains) or crashes (shares still fall).
- Choose strikes 10-20% OTM with 30-45 DTE for the best balance of premium and upside room.
- Annualised return from covered calls is typically 8-15% on top of the stock's return.
Practical Tips
- Only sell covered calls on stocks you'd be happy holding long-term — you may get assigned and sell at the strike.
- Avoid selling calls before earnings unless you're willing to have shares called away on a gap-up.
- If the stock makes a big move up, you can roll the call up and out before expiration for a net credit.
More Strategies Guides
Iron Condors — Profit from Range-Bound Markets
An iron condor combines a bull put spread and a bear call spread to profit when the stock stays within a range. It's the classic volatility-selling strategy with defined risk on both sides. Check <a href="/market/options-chains/implied-volatility" class="text-primary hover:underline">implied volatility</a> before entering — iron condors work best when IV rank is elevated. Track every condor's P&L in your <a href="/tools/trading-journal" class="text-primary hover:underline">trading journal</a> and chart your strike selections on <a href="/tools/platforms/tradingview" class="text-primary hover:underline">TradingView</a> for visual confirmation.
Vertical Spreads — Defined-Risk Directional Trades
Vertical spreads combine a long and short option at different strikes but the same expiration. They define your max risk and max reward upfront — the foundation of professional options trading. Model every spread with the <a href="/tools/calculators/risk-reward" class="text-primary hover:underline">risk/reward calculator</a> before entering a position. Explore more advanced variations like <a href="/market/options-chains/iron-condors" class="text-primary hover:underline">iron condors</a> once you are comfortable with single-leg spreads, and review our <a href="/strategies" class="text-primary hover:underline">strategies library</a> for additional setups.
Cash-Secured Puts — Getting Paid to Buy
A cash-secured put obligates you to buy shares at the strike price if assigned — you collect premium while you wait. It's like setting a limit buy order and getting paid for it. Use the <a href="/tools/calculators/position-size" class="text-primary hover:underline">position size calculator</a> to ensure you have enough capital reserved for assignment. When your put is eventually assigned, transition into a <a href="/market/options-chains/covered-calls" class="text-primary hover:underline">covered call</a> to run the full Wheel strategy and keep generating income.