Sell Call Options
The Income Generator
Strategy Overview
When you sell a covered call, you're selling someone else the right to buy your shares at a specific price (strike price) until expiration, while collecting premium upfront. This strategy combines stock ownership with option premium collection, creating an income stream from your portfolio.
Premium Received
The income you collect upfront for selling the call option. This is your maximum potential profit from the option component.
Strike Price
The price at which you're obligated to sell your shares if the option is exercised. Choose this based on your target exit price.
Stock Position
You must own 100 shares per contract to keep this strategy "covered" and limit risk.
Maximum Profit
Strike price minus stock cost basis plus premium received. Profit is capped at this level.
Payoff Diagram
This chart shows how the strategy works by combining: your stock position (gray line) showing potential gains/losses from owning shares, the call option you sold (red line) showing income and obligations, and how they work together (green line) to show your overall potential profits and losses.
When to Use This Strategy
Income Generation
When you want to generate additional income from stock positions you already own and are willing to hold.
Neutral to Slightly Bullish
When you expect the stock to stay flat or rise modestly, allowing you to keep both the premium and your shares.
Target Exit Price
When you have a price target where you'd be happy to sell your shares, while collecting premium in the meantime.
Example Trade
Let's walk through a covered call trade example:
Trade Setup
- Stock: XYZ currently at $100 (100 shares owned)
- Action: Sell 1 call option
- Strike Price: $105
- Premium: $2.00 ($200 total received)
- Expiration: 45 days
- Break-even: $98 (stock cost basis - premium)
Potential Outcomes
Best Case
Stock rises to $105 or slightly below:
- Keep premium ($200)
- Keep stock appreciation
- Option expires worthless
- Can sell new call next month
Assignment Case
Stock rises above $105:
- Keep premium ($200)
- Shares called away at $105
- Miss additional upside above $105
- Total profit capped at $700 ($500 stock + $200 premium)
Strategy Quick Facts
Maximum Loss
Stock price can fall to zero, offset slightly by premium
Maximum Profit
Strike price - stock cost + premium received
Break-even Point
Stock cost basis - premium received
Time Decay Impact
Positive (helps position)
Implied Volatility Impact
Higher IV = more premium received
Risk Management
Common Mistakes to Avoid
Chasing Premium
Selling calls too close to the current stock price just to collect more premium, risking unwanted assignment.
Selling Below Cost Basis
Selling calls with strikes below your purchase price, potentially forcing you to realize losses if assigned.
Ignoring Corporate Events
Not accounting for earnings announcements or dividend dates when selling calls.
Ready to Generate Income?
Master covered calls through our interactive tools: