Covered calls
Rent out your shares for monthly income
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You already own the stock. Now rent it out to someone else and collect the check. The gentlest income trade on the mountain.
Imagine you own 100 shares of a stock, you like it, and you’re happy to keep holding. A covered call lets you sell a call option against those shares and pocket the premium — like collecting rent from a tenant living in a house you own.
If the stock stays calm, you keep the rent and your shares, and you can do it all again next month. It’s one of the most beginner-friendly ways to squeeze steady income out of stock you were going to hold anyway.
Why is it called “covered”?
When you sell a call, you’re promising to deliver 100 shares if the buyer decides to exercise. That sounds scary — until you remember you already own those 100 shares. You’re covered. You can hand them over without scrambling to buy anything at a bad price.
That owned stock is the whole safety net. It’s what transforms a reckless naked call — which carries genuinely huge risk — into a calm, boring income trade. Same sold call, wildly different risk, all because of the shares sitting in your account.
One contract covers 100 shares. To sell a covered call you must already hold those 100 shares per contract. No shares underneath means it’s a naked call — a completely different animal with far bigger risk.
Own the stock, rent it out, collect the check — the shares in your account are the safety net that makes it calm.
The catch: your upside gets a ceiling
Nothing is free. By selling that call, you’ve given someone the right to buy your shares at the strike price. If the stock rockets far past the strike, you’re still obligated to sell at the strike — and you miss every dollar of gain above it.
You still profit: you keep the premium plus the stock’s rise up to the strike. But a genuine moonshot leaves you watching from the sidewalk while the rocket you half-owned disappears into the sky. That capped upside is the exact price you pay for the income.
If the stock blasts past your strike, your shares get called away — sold at the strike whether you like it or not. Never write a covered call at a strike you’d be gutted to sell at. Pick a ceiling you’d genuinely be happy to walk away with.
The sweet spot: flat and boring
A covered call earns its steadiest income when the stock stays flat or drifts gently upward. In that quiet zone the call you sold expires worthless, you keep both the premium and your shares, and next month you simply write another one.
Quick worked example: you own shares bought at $100 and sell the $110 call for $3. The stock jumps to $130. Your shares get called away at $110 — but you still keep the $3 premium on top. A solid win; you just missed the run from $110 to $130.
A covered call is a way to make a flat, going-nowhere stock actually pay you while you wait. If you were holding it anyway, that monthly premium is money the shares would never have handed you on their own.
Own the stock, sell a call, collect the rent, repeat — just respect the ceiling on your upside. Next, we run this idea in reverse: get paid to buy a stock in the first place, then loop the whole thing into a wheel. 🏠