In this strategy workshop, Liz and Jenny explain the basics of a Covered Call. This method simply consists of buying 100 shares of stock and selling 1 Out of The Money (OTM) call option.
We typically look to sell the option with 30 days to 60 days to expiration (DTE), in high IV ranking underlyings where we have a bullish assumption on the price of the stock.
Our maximum profit is the strike price minus the stock price, plus the credit received from the call. If the stock expires above your short call, you receive max profit but your 100 shares of stock will be called away.
If the stock doesn’t move at expiration or expires between the stock price and the short call, your short call expires worthless. You make max profit on the short call and still own the 100 shares of stock.
If the stock goes down at expiration, you keep your 100 shares of stock but you’ve improved your cost basis.