Covered call

Covered call: its essence lies in the process of simultaneous opening a long position in the stock market and selling the call option on the same asset.

This strategy has limited but substantial risk that depends on the asset price decline and the limited profit potential (premium – asset price + strike price). The break-even point equals the stock price minus premium.

Covered Call

Suppose, we buy the stock for $90, and at the same time sell the call option for $20. Suppose, the strike price is $100. The break-even point equals $70 ($90 – $20). Thus, if the asset price stays below the price mark of $100, that is there’s no active movements in the market now, we can get $20 as extra-profit (it’s premium). And when the stock continues to move up beyond $100 we’ll benefit from the stock movement.

Options Glossary