A covered call pairs ownership of 100 shares with a Short Position call option. The premium collected provides income and a small cushion against modest declines, but upside beyond the strike is capped because you agree to sell the shares if assigned. This approach suits investors who are neutral to mildly bullish on the stock and willing to trade away some upside for premium income.
Ways to close a covered call:
- Let the option expire worthless and keep the underlying shares.
- Buy to Close the call before expiration to lock in gains or cut losses.
- Roll the position by Buy to Close the call and Sell to Open another with a later expiration or different strike.
- Allow Option Assignment and deliver the shares at the strike price.