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Selling call options against stock you already own to generate income.
Why It Matters
Covered calls turn your stocks into income-producing assets. Own 100 shares of Apple? Sell a call and collect $200-500 in premium. If the stock stays flat or dips slightly, you keep the premium as pure profit. The tradeoff: if the stock rockets up, your gains are capped at the strike price.
Key Points
- Requires owning 100 shares per contract you sell (hence 'covered')
- Best in flat or slightly bullish markets - you profit from time decay
- Risk: missing out on gains if stock surges past your strike (opportunity cost)
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Covered Calls
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Common Questions
Selling call options against stock you already own to generate income. Covered calls turn your stocks into income-producing assets. Own 100 shares of Apple? Sell a call and collect $200-500 in premium.
Covered calls turn your stocks into income-producing assets. Own 100 shares of Apple? Sell a call and collect $200-500 in premium. If the stock stays flat or dips slightly, you keep the premium as pure profit. The tradeoff: if the stock rockets up, your gains are capped at the strike price.
Requires owning 100 shares per contract you sell (hence 'covered')
Best in flat or slightly bullish markets - you profit from time decay
Risk: missing out on gains if stock surges past your strike (opportunity cost)