![]() ![]() Furthermore, if your stock falls in value by more than the premium you sold the call for, you stand to lose money just as if you had sold a naked put option.Ĭovered call writing can also lower your cost basis for buying stock. At expiration, you will show a net gain if the stock’s price has risen up to or beyond your sold option’s strike price, although you’ll need to either give up your stock or close out the option if the option ends up in-the-money at expiration. With the covered call strategy, if the stock price rises, the gain in the value of your shares completely covers the losses from your call option beyond the option’s strike price. If you sell a call option, that call loses value if the stock price declines or the market stays relatively stable while time passes. This combination has the same risk profile as selling a naked put option, and so it exposes you to virtually unlimited downside risk while having only limited upside potential up to the strike price. Selling a covered call means writing a call option against shares of a stock that you own. Features to Look for in Covered Call Stock Plays. ![]()
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