A covered call that pays $1.50 on a $100 stock sounds like 1.5%. A cash-secured put that pays $2.00 on a $95 strike sounds like 2.1%. But one expires in 30 days and the other in 45, so which one is actually the better use of your capital? Annualizing the return puts every trade on the same clock so you can compare them. It also makes it easy to fool yourself, which is why this guide covers both the math and its limits. ...
The wheel is an income strategy built from two simpler ones you may already know: the cash-secured put and the covered call. You sell options on a stock you would be happy to own, collect premium either way, and let the stock be assigned to you or called away as the cycle turns. It is popular because every step is a plain trade and the rules fit on an index card. It is also easy to run badly, usually by wheeling a stock you did not actually want to hold. ...
Cash-secured puts and covered calls are the two most common income-generating options strategies, and traders new to selling premium often ask which one is “better.” The honest answer is that they’re mirror images of the same directional bet. The real question isn’t which strategy is superior, it’s which starting position and which market view you actually have right now. How Each Strategy Is Structured A cash-secured put means selling a put option while setting aside enough cash to buy the stock if you’re assigned. You don’t own the shares yet. You’re being paid a premium for agreeing to buy them at the strike price if the stock falls to (or below) it. See Cash-Secured Put 101 for the full mechanics. ...
Selling a call option obligates you to sell 100 shares at the strike price if the buyer exercises. That obligation is identical whether you own the underlying shares or not, but what happens if you’re wrong is completely different depending on which one you’re doing. Understanding that gap is the whole point of comparing a covered call to a naked call. Covered Call: Defined, Bounded Risk A covered call means you already own 100 shares of the stock (per contract) and sell a call against them. If the stock rallies past your strike, you’re simply selling shares you already own at a price you agreed to in advance. Your “loss” relative to just holding the stock is capped at the difference between the stock’s actual price and your strike, plus the premium you already collected offsetting it. ...
Selling a covered call is simple in concept (you own shares and sell a call against them for income), but the numbers behind it (breakeven, return, and how much cushion you have if the stock drops) are what should drive your decisions. This guide walks through each formula and shows exactly how to run the math by hand. For a refresher on how the strategy works mechanically, see the covered call strategy guide or the covered call 101 walkthrough. If you want the numbers computed for you, the options profit calculator has a dedicated covered call mode. ...
If you sell covered calls regularly, you’ll eventually run into a stock that rallies past your strike price before expiration. At that point you have a choice: let the shares get called away, or roll the position to buy yourself more room and more premium. Rolling is one of the most useful adjustment tools in an options seller’s toolkit, and the mechanics are simpler than they sound once you break them down. ...
An options profit calculator turns a handful of numbers from your trade ticket (strikes, premium, contracts) into the three things every options trader actually needs before placing a trade: max profit, max loss, and breakeven. The options profit calculator on this site does this for single-leg trades like long calls and puts, income strategies like covered calls and cash-secured puts, and multi-leg trades like credit spreads, debit spreads, and iron condors. ...
A covered call is one of the most common ways to earn income from shares you already own. You sell someone the right to buy your stock at a set price, they pay you for that right, and you keep the payment no matter what happens next. The trade-off is that you give up the upside above that price. This guide covers how the trade works, what can happen at expiration (including a mistake that many beginner explanations make), and how to decide whether it fits your shares. ...
This is a walkthrough of a covered call I ran on QQQ, the ETF that tracks the Nasdaq-100: why I opened it, how I set it up and what happened. Nothing fancy, which is kind of the point. Quick refresher: what a covered call is A covered call means you own the shares and sell someone the right to buy them from you at a set price (the strike) before a set date. You get paid a premium up front for that. If the stock stays below the strike, the option expires and you keep both the shares and the premium. If it runs above the strike, your shares can get called away at that price. ...
If you own a stock that isn’t doing much, a covered call lets you earn some income from it. You sell someone the right to buy your shares at a higher price, collect a premium for it, and keep that premium whatever happens. The cost is that if the stock really takes off, you sell at the strike and miss the rest of the move. How it works You own 100 shares. That’s what makes the call “covered”. You sell one call against them, giving the buyer the right to buy your shares at the strike price before expiration. You collect the premium up front. If the stock stays below the strike, the call expires, and you keep the shares and the premium. If it finishes above the strike, your shares are sold (“called away”) at the strike, and you keep the premium plus any gain up to that price. ...