Glossary
What is a covered call?
A covered call is selling someone the right to buy stock you already own at a set price by a set date, in exchange for a premium today. It generates income and cushions small declines, but caps your upside — if the stock rises past the strike, your shares are sold at that price.
For a large concentrated position, covered calls are sometimes proposed as a way to generate income while waiting to diversify, or to nudge shares out the door at a price you would be happy with.
They also bring problems that get glossed over. Your upside is capped. Assignment can be triggered earlier than expected. And in a taxable account, assignment realizes a gain on your schedule rather than the market's — which for a low-basis position can mean an unplanned tax bill.
They can fit. Often the simpler staged sale is better, and we will say so.
Common questions
It does not add leverage, because you already own the shares. What it does is cap your upside and commit you to selling at the strike price. The risk is opportunity cost and a tax event on someone else's timing, not a margin call.
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Thirty minutes to see where your income will come from. If we are not the right fit, we will tell you.