Covered Call
A covered call combines a long stock position with a short call option. It can generate option premium while giving up some upside beyond the call strike.
Key Facts
- Market Outlook
- Neutral to moderately bullish on an underlying you own.
- Construction
- Own the underlying (typically 100 shares for each contract) and sell one call against it, usually at a strike above the current price, collecting the call's premium. “Purchase price” below means the price paid for the underlying.
- Max Profit
- Call strike − purchase price + premium received, if the underlying finishes at or above the strike. If the strike is below the purchase price, this amount is smaller and can be negative.
- Max Loss
- Purchase price − premium received, if the underlying falls to zero. The premium offsets only part of a decline in the underlying.
- Breakeven(s)
- One: purchase price − premium received.
- At Expiration
- At or above the strike, the call is exercised and the underlying is sold at the strike (“called away”), so gains stop growing. Below the strike, the call expires worthless and the position moves one-for-one with the underlying, cushioned by the premium.
Per share, at expiration (at the near-term expiration for calendar and diagonal spreads). Assumes the position is held until then and ignores commissions, taxes, dividends and early assignment.
Income With a Cap
Covered call — own the underlying and sell a call above it; upside is capped at the strike.
Illustrative example — not live market data.
Manual Market — Go Beyond a Single Expiration
Manual Market lets you set expiration dates independently for each leg and model positions with your own inputs — without depending on OptionLab's built-in US or Israel market data. Explore more advanced positions shaped by both price and time.
Related Strategies
How It Works
A covered call starts with owning the underlying, then selling one call option against that position. The premium from the call is collected up front, whatever the price does afterward.
Because the call is sold, upside above the strike becomes limited — the position stops gaining further once the underlying rises past it. The downside exposure from owning the underlying still exists below that point; the premium only offsets losses by a limited amount, it doesn't remove the risk of owning the position.
Build a Covered Call in OptionLab
Covered Call is one of OptionLab's built-in strategy templates. OptionLab builds the underlying-and-call structure for you, and you can adjust the strike to match your view. From there, you can see the payoff graph, breakeven point, and maximum profit and maximum loss.
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