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 the premium.

Covered Call

Suppose, someone buys the stock for $90, and at the same time sells the call for the premium of $20, and has the strike price at $100. So, the break-even point equals $70 ($90-$20). Thus, if the asset stays below the price mark of $100, that is the market’s view is short-term neutral, an investor can get $20 as extra-profit (it’s the premium size) and when the stock continues to move up beyond $100 he gains a profit from the stock movement.

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