What Is Covered Call? Meaning & Example
Definition
A covered call combines owning at least 100 shares with selling a call option on them to collect premium. It generates income but caps upside above the strike.
Related terms
A call option gives the buyer the right to buy an asset at the strike price before expiration. Buyers profit if the price rises enough above the strike to cover the premium paid.
Option PremiumThe premium is the price paid by an option buyer to the seller. It reflects intrinsic value, time remaining and expected volatility.
AssignmentAssignment happens when an option seller is required to fulfill the contract because the buyer exercised it. Call sellers deliver shares; put sellers buy shares at the strike.
What is Covered Call?
A covered call combines owning at least 100 shares with selling a call option on them to collect premium. It generates income but caps upside above the strike.
Can you give an example of Covered Call?
Owning 100 shares at $50 and selling a $55 call for $1 brings in $100 but limits gains above $55.