Neutral options strategy
Covered call
Own 100 shares and sell a call against them. You collect premium now and agree to sell the shares at the strike.
NeutralHigh IV (selling rich premium)Undefined riskLevel 4 · Selling premium
Covered call payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Buy 100 shares at $100.00
Sell 1 $105 call · 30 days · $1.66
Net debit $9,834
Max profit$666
Max loss−$9,834
Break-even$98.34
Chance of profit57%
How it works
- The premium is yours to keep whatever happens.
- If the stock ends above the strike, your shares are sold (called away) at the strike.
- Your downside is the same as owning the stock, cushioned only by the premium.
When to use it
- You own a stock you'd be happy to sell at a higher price.
- You expect the stock to drift sideways or rise slowly.
Managing the trade
- A 0.30-delta call 30-45 days out is a common balance of income and upside.
- If the stock rallies through the strike, you can roll the call up and out (buy it back, sell a later, higher one) for a net credit.
- Watch the ex-dividend date: an in-the-money call may be assigned early the day before.
Risks
- Upside is capped at the strike.
- A big drop in the stock still hurts: the premium only covers a small part of it.