A Covered Call is a common option strategy that is used to enhance a long stock position. In simple terms, it allows an investor to sell a portion of the unlimited upside in a stock position for cash each month. I almost always prefer covered calls to naked stock because it provides some downside protection (via cost basis reduction) and it allows me to profit even when the share price stays the same. Covered calls is easy to learn and doesn’t introduce any additional risk.
- Buy 100 shares of stock.
- Sell 1 call for every 100 shares.