Covered Call

Description

Holding the underlying stock while selling an equivalent number of Call options.

Trading Logic

Earn premium to reduce cost basis. Sacrifices upside potential for limited downside protection.

Practical Example

Own 100 shares of AAPL at $150. Sell one $160 strike Call for $5 premium.

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P/L Curve

Chart Description
  • X-Axis: Stock price at expiration
  • Y-Axis: Expected P/L ($)
  • Green area: Profit; Red area: Loss