Selling Covered Calls: Monthly Income From Shares You Already Own
A covered call is the inverse of a CSP: you own 100 shares and sell a call against them. You collect premium today in exchange for capping your upside at the strike. If the stock stays below strike, you keep the premium and the shares. If it rallies past strike, your shares get called away at the strike — a profit, just a capped one.
The trade-off is explicit: you exchange uncapped upside for guaranteed income. On stocks you already own and intend to hold, that trade is often worth it — the historical premium yield on covered calls written at the 0.30 delta strike has consistently beaten dividend yields on the same names. The strategy underperforms outright stock ownership in raging bull markets and outperforms in flat or modestly rising markets.
Mechanics: pick a 30–45 DTE expiration, sell at the 0.20–0.30 delta call (above current price), and roll up and out if the stock rallies hard. Take profits at 50% of premium received. Avoid selling covered calls below your cost basis — having shares called away at a loss locks in the loss instead of giving the position time to recover.
Frequently Asked Questions
Will my shares always get called away if the stock closes above strike?
Almost always at expiration, yes. Before expiration, early assignment is rare and usually only happens around dividends on deep-ITM calls.
Can I sell covered calls in a retirement account?
Yes — covered calls are typically Level 2 approval and allowed in IRAs at most brokers. CSPs and naked options often are not.