Learn / Options / Covered call
Covered call
You hold the shares and sell a call. The premium is income, and the call caps the upside.
By M.M. · Published 5 Nov 2026
What it is
A covered call is a long stock position plus a short call on that stock. In this model one contract is one share, so the example holds one share and sells one call. Multiply the dollars by 100 if you mean a listed contract.
Selling the call brings in a premium. If the stock finishes below the strike, you keep the shares and the premium. If it finishes above the strike, the gain on the shares stops around the strike, plus the premium you already took in.
When people use it
People sell covered calls when they are willing to let the shares go at the strike and they want a little income while they wait. It suits a stock they already own and do not expect to sprint. It is a poor fit if the reason they own it is a large upside.
A $100 stock
Take a stock at $100. Volatility is 25 percent, the risk-free rate is 4 percent, and expiry is 30 days out.
Hold one share marked at $100 and sell the 105 call for $1.17. The share itself is a separate outlay of $100 in this example.
Above 105 the share gain is offset by the short call, so the profit levels off. A fall in the stock is mostly a stock loss. You take in a net credit of $1.17. At expiry it breaks even at $98.83. The most you can make at expiry is $6.17. The most you can lose at expiry is $98.83.
The model uses one volatility for every strike, a flat risk-free rate, and no dividend. A live option quote will differ. Each contract here covers one share. A listed equity contract usually covers 100 shares.
Risks
This is not a hedge that saves you in a crash. The premium is small next to the share price. If the stock falls hard, you lose on the shares, and the premium only softens the first bit of that fall. The worst expiry result is the stock at zero, minus the premium you collected.
The upside is the part people feel later. A sharp rally means you deliver the shares at the strike while the stock keeps going. The short call can also be assigned early. This page marks the shares at the spot you type. It does not know the price you really paid.
Try this plan
The builder below starts on this spread at a $100 stock. Change the ticker or the legs, then copy the share link. The same tool lives at the options payoff builder.
Education only. Prices are theoretical Black-Scholes values, not live option quotes, and this is not investment advice.
Type a ticker to fill the spot from the quote, or enter the spot yourself.
| Leg | Premium | Delta | Theta / day |
|---|---|---|---|
| short 1 call $105.00 / 30d | $1.17 | 0.275 | -$0.043 |
This is a covered call. You are short 1 call at $105.00. It expires in 30 days. The options bring in a net credit of $1.17. You also hold 1 share, marked at $100.00. At expiry it breaks even at $98.83. The most you can make at expiry is $6.17. The most you can lose at expiry is $98.83. Model delta is 0.725. Model theta is $0.043 per day.
Payoff
At $100.25, expiry P&L $1.42, today $0.18.
| Stock | At expiry | Today |
|---|---|---|
| $80.00 | -$18.83 | -$18.83 |
| $85.63 | -$13.21 | -$13.21 |
| $91.25 | -$7.58 | -$7.66 |
| $96.88 | -$1.96 | -$2.47 |
| $102.50 | $3.67 | $1.66 |
| $108.13 | $6.17 | $4.21 |
| $113.75 | $6.17 | $5.35 |
| $119.38 | $6.17 | $5.72 |
| $125.00 | $6.17 | $5.81 |
The model uses one volatility for every strike, a flat risk-free rate, and no dividend. A live option quote will differ. Each contract here covers one share. A listed equity contract usually covers 100 shares.