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.