# Covered call A covered call is a call option written against 100 shares of the stock that the writer owns. The writer receives the premium and must deliver the shares at the strike price if the call is assigned. Beginner · Strategy · published 29 September 2026 · last reviewed 29 September 2026 Canonical page: https://optionsbeacon.pro/learn/covered-call Learn Options > Income and protection strategies ## Key points - The writer keeps the premium in every case and gives up the gain of the shares above the strike price. - The most the position can make is the strike price less the cost of the shares, plus the premium. - The premium lowers the break-even of the shares by its amount and no more. Below the break-even the position loses what the shares lose. - A covered call can be assigned on any business day, most often just before the stock goes ex-dividend. ## At a glance | | | |---|---| | Outlook | Neutral to moderately bullish on a stock that is owned | | Setup | Own 100 shares and sell 1 call, usually with a strike price above the stock price | | Maximum gain | The strike price less the cost of the shares, plus the premium, per share | | Maximum loss | The cost of the shares less the premium, per share, with the stock at $0 | | Break-even at expiration | The cost of the shares less the premium | | Time decay | Works for the position | | Volatility | A rise in implied volatility works against the position, slightly | | Assignment risk | On any business day, and highest just before an ex-dividend date | | Capital needed | The price of 100 shares, of which the premium covers a part | A [covered call](https://optionsbeacon.pro/learn/glossary.md#covered-call) adds a written call to shares. When the call is written on shares that are already owned, the position is also called an overwrite, and when the shares are bought at the same time, a buy-write. The shares cover the obligation of the call: if the call is assigned, they are what is delivered. ## What a covered call is The writer owns 100 shares and sells one [call](https://optionsbeacon.pro/learn/glossary.md#call-option) on them. The [premium](https://optionsbeacon.pro/learn/glossary.md#premium) is received at once and kept in every case. In exchange the writer is obliged to sell the 100 shares at the strike price if the call is assigned. Above the strike price the writer has sold the rise of the stock to the holder of the call. Below it the writer owns the shares as before, with all their risk. ## How a covered call makes and loses money The position is shares plus a written call, and its result at expiration is the sum of both. - **The stock is above the strike price.** The shares are [called away](https://optionsbeacon.pro/learn/glossary.md#called-away) at the strike price. The result is the strike price less the cost of the shares, plus the premium. It is the maximum gain and it does not grow when the stock rises further. - **The stock is at or below the strike price.** The call expires worthless. The writer keeps the shares and the premium, and the result is the gain or loss of the shares plus the premium. **Payoff at expiration: Covered call, shares at 50, 55 strike, 1.00 premium** Maximum profit $600 per contract. Break-even at a stock price of $49. Maximum loss $4,900 per contract, with the stock at $0. | Stock price at expiration | 100 shares alone, per share | 100 shares alone, per contract | Covered call, per share | Covered call, per contract | |---:|---:|---:|---:|---:| | $35 | -$15 | -$1,500 | -$14 | -$1,400 | | $49 | -$1 | -$100 | $0 | $0 | | $50 | $0 | $0 | +$1 | +$100 | | $55 | +$5 | +$500 | +$6 | +$600 | | $65 | +$15 | +$1,500 | +$6 | +$600 | *Hypothetical example for illustration only. One contract covers 100 shares; commissions, fees, dividends and taxes are ignored unless stated.* The [break-even](https://optionsbeacon.pro/learn/glossary.md#break-even) at expiration is the cost of the shares less the premium. ## Example of a covered call > **Example** > > 100 shares of XYZ are bought at $50, for $5,000. One call with a strike price of $55 that expires in 30 days is > sold for $1.00 per share, and the writer receives $100. The break-even at expiration is $50 - $1.00 = $49. > > - With XYZ at $60 at expiration, the call is assigned and the shares are sold at $55. The result is > ($55 - $50 + $1.00) × 100 = +$600. The shares alone would have made $1,000. > - With XYZ at $52, the call expires worthless. The result is ($52 - $50 + $1.00) × 100 = +$300. > - With XYZ at $44, the call expires worthless. The result is ($44 - $50 + $1.00) × 100 = -$500. The shares > alone would have lost $600. > > *Hypothetical example for illustration only. One contract covers 100 shares; commissions, fees, dividends and taxes are ignored unless stated.* ## What happens to a covered call before expiration The written call loses value as time passes, which works for the writer, and gains value when the stock rises or when implied volatility rises, which works against the writer. When the stock rises toward the strike price, the shares gain more than the call costs, so the position as a whole gains, more and more slowly. When the stock falls, the call loses value and softens the loss of the shares a little. The position always gains less than the shares on the way up and loses almost as much on the way down. ## What happens when a covered call is assigned On [assignment](https://optionsbeacon.pro/learn/glossary.md#assignment) the 100 shares are delivered and the writer receives the strike price times 100. The position is over. The sale of the shares is a sale like any other, with a gain or a loss against what they cost. A call can be assigned before its expiration. It happens most often on the day before the stock goes [ex-dividend](https://optionsbeacon.pro/learn/glossary.md#ex-dividend-date), when the call is in the money and the dividend is larger than the time value the call has left. The writer then delivers the shares and does not receive the dividend. ## How a covered call position is managed | Action | What it does | What it costs | |---|---|---| | Let the call expire | The obligation ends when the call is out of the money at expiration, and the shares are kept | Nothing | | Buy to close | Ends the obligation and frees the shares | The premium of the call at that time | | Roll | Closes the call and sells another with a later expiration date, another strike price, or both | Two trades. The loss on the first call is realized | | Accept assignment | The shares are sold at the strike price | The rise of the stock above the strike price | The shares cannot be sold while the call is open without leaving an uncovered call behind. A writer who wants to sell the shares closes the call first. ## What can go wrong with a covered call The risk of loss comes from holding the stock, and the call does not add to it. It also takes little of it away. A premium of $1.00 covers the first dollar of a fall. If the stock falls from $50 to $30, the position has lost $1,900 per 100 shares. The gain is capped for the life of the call. A stock that rises 30% in a month pays the writer the maximum gain, $600 in the example, and the rest of the rise goes to the holder of the call. Over many months a writer keeps the small gains, gives up the large ones and keeps the large losses. Writing calls with a strike price below the cost of the shares can lock in a loss. If shares bought at $50 trade at $42 and a call with a strike price of $45 is written for $1.00 and assigned, the shares are sold at $45 and the result is ($45 - $50 + $1.00) × 100 = -$400. ## Questions and answers ### What happens to a covered call if the stock rises above the strike price? At expiration the call is assigned and the 100 shares are delivered at the strike price. The writer keeps the premium and the gain of the shares up to the strike price. The part of the rise above the strike price belongs to the holder of the call. ### Does a covered call protect against a fall of the stock? Only by the amount of the premium. If the shares fall by $10 and the premium was $1, the position has lost $9 per share. ## Terms used on this page - **Covered call**: A call written against 100 shares that the writer owns. The shares are delivered at the strike price if the call is assigned. It is called a buy-write when the shares are bought at the same time, and an overwrite when the call is written on shares already held. - **Call option**: An option that gives its holder the right to buy the underlying shares at the strike price. The writer of a call must deliver the shares at that price if the call is assigned. - **Premium**: The price of an option, quoted per share. One standard contract covers 100 shares, so a premium of $1.50 is $150 per contract. - **Called away**: What happens to shares when a call written against them is assigned. They are delivered to the holder of the call at the strike price. - **Assignment**: The notice to the writer of an option that a holder has exercised it, which obliges the writer to deliver (a call) or to buy (a put) the shares at the strike price. - **Ex-dividend date**: The first day on which a stock trades without the right to its next dividend. The holder of a call receives that dividend only by exercising before this date and owning the shares. - **Break-even**: The price of the underlying at expiration at which a position neither makes nor loses money. For a long call it is the strike price plus the premium paid; for a short put, the strike price less the premium received. ## Sources 1. [Covered Call (Buy/Write)](https://www.optionseducation.org/strategies/all-strategies/covered-call-buy-write), The Options Industry Council (read 29 September 2026). 2. [Options Overview for Investors](https://www.optionseducation.org/getcontentasset/8d382efb-64ba-431f-9b87-b7fc9b0916bf/50c2bc4c-a8ff-46ba-95c2-0e74752d147f/oic-options-overview-for-investors-final.pdf?language=en-US), The Options Industry Council (read 29 September 2026). 3. [Characteristics and Risks of Standardized Options](https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document), The Options Clearing Corporation (read 29 September 2026). The options disclosure document, edition of June 2024. 4. [Exercising Options](https://www.optionseducation.org/optionsoverview/exercising-options), The Options Industry Council (read 29 September 2026). 5. [Options Assignment](https://www.optionseducation.org/referencelibrary/faq/options-assignment), The Options Industry Council (read 29 September 2026). Frequently asked questions. 6. [Options Glossary](https://www.optionseducation.org/referencelibrary/optionsglossary), The Options Industry Council (read 29 September 2026). 7. [Covered Calls Uncovered](https://rpc.cfainstitute.org/research/financial-analysts-journal/2015/covered-calls-uncovered), Roni Israelov and Lars N. Nielsen, Financial Analysts Journal 71 (6), 2015 (read 29 September 2026). The abstract. ## Related topics - [Cash-secured put](https://optionsbeacon.pro/learn/cash-secured-put.md) - [The wheel strategy](https://optionsbeacon.pro/learn/wheel-strategy.md) - [Collar](https://optionsbeacon.pro/learn/collar.md) - [The main risks of options](https://optionsbeacon.pro/learn/risks-of-options.md) - [Theta and time decay](https://optionsbeacon.pro/learn/theta-time-decay.md) --- Educational content from Options Beacon. It is not investment, tax or legal advice, and not a recommendation to buy or sell any security or to use any strategy. Options involve risk and are not suitable for all investors; an option seller can lose far more than the premium received. Before trading options, read [Characteristics and Risks of Standardized Options](https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document). Articles are drafted with AI assistance and checked against the sources listed on each page.