Covered Call
An options strategy where an investor who owns a stock sells call options on it to generate premium income.
What is Covered Call?
A covered call is an options strategy in which an investor who holds a long position in a stock simultaneously sells (writes) call options on that same stock to generate income from the premium received. The "covered" designation means the investor already owns the underlying shares, limiting risk. The strategy caps upside gains — if the stock rises above the strike price, shares may be called away — but provides a consistent income stream in sideways or mildly rising markets.
Example
An investor owns 100 shares of Microsoft at $380 and sells a call option with a $400 strike price for $5/share, collecting $500 in premium. If MSFT stays below $400 at expiration, the option expires worthless and the investor keeps the premium as pure income.
Source: CBOE — Covered Call Education