Covered Call – The Option Strategy Desk Reference

Covered Call

Strategy: Buy n Calls, 90 DTE

Buy or Own n × 100 Shares

Example:

Price Chart: Uptrending or moving sideways

Current IV%: 60%

IV Rank: 70

Trade: Sell one OTM call option for each 100 “covering” shares held within the trader’s brokerage account.

Typical Strike Delta: 0.40 ( 60% Probability OTM)

Goals: A strong rally in the price of the underlying required to move the long call deeper ITM to increase premium value; collect premium from the short call to partially offset the premium paid when this trade is entered.

Manage: If the stock rallies and increases in value, be prepared to close the long stock for profit and the short calls to prevent them from becoming ITM. If the price of the underlying drops, consider selling the long stock to prevent a major loss. Without the highest trading permission, the trader is required to simultaneously buy to close the short calls. Otherwise, let the short calls expire worthless.

Profit: Close when this trade returns a profit of 30 percent or more.

Loss: Close when this trade approaches an 8 percent loss.