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Covered call definition
A covered call is an options strategy that pairs owning an asset with selling a call option on that same asset. It is most often run on shares.
It is called covered because you already hold the shares you would have to deliver if the call is exercised. You collect the option premium up front, and that premium is income you keep whatever happens next.
A covered call is the seller's side of a plain call option, written against stock you already own. That cover is what separates it from a naked call, where the seller writes the call with no underlying shares and faces open-ended risk if price climbs. The cover caps that risk, but it also caps your upside: if the asset rises above the strike, the shares can be called away at the strike and your profit on them stops there.
Covered call Example
You own 100 shares of a stock trading at USD 50. You sell one call option with a USD 55 strike and collect a USD 2 premium per share.
100 √ó USD 2 = USD 200 premium
If the stock stays below USD 55, you keep the shares and the USD 200. If it rises above USD 55, the shares can be sold at USD 55, so your gain on them stops at the strike even if price runs higher.
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