You own 100 shares at $50. You sell a covered call with a $55 strike for a $2 premium. The stock rises to $60 at expiry. What happens?

The call buyer exercises at $55. You sell 100 shares at $55 (your obligation) and keep the $2 premium. Total gain = $5 (55-50) + $2 premium = $7/share, even though the stock went to $60.

What is a covered call?

Selling a call option on shares you already own. You receive a premium now, but agree to sell your shares at the strike price if the option is exercised.

What is the main trade-off of a covered call?

You earn premium income, but your upside is capped at the strike price. If the stock rallies strongly, you miss the gains above the strike.

Why do covered call traders prefer 30-45 DTE options?

Options lose value fastest (theta decay) in the last 30-45 days before expiry. This maximizes premium earned per unit of time.

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IntermediateOptions Strategy

Covered Call: Earn Income From Stocks You Own

A covered call lets you earn premium income by selling call options on stocks you already own. It's one of the most popular income-generating strategies — but it caps your upside.

By Jim Liu · Published February 2026

TL;DR

A covered call lets you earn premium income by selling call options on stocks you already own. It's one of the most popular income-generating strategies — but it caps your upside.

How It Works

You own 100 shares of a stock. You sell 1 call option (which covers 100 shares) at a strike price above the current price. The buyer pays you a premium upfront. If the stock stays below the strike at expiry, the option expires worthless and you keep the premium. If the stock surpasses the strike, you sell your shares at the strike price.

Key Terms:

covered callstrike pricepremiumexpiry

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Covered Call: Earn Income From Stocks You Own

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