A covered call is an options strategy where an investor sells call options against shares they already own, collecting premium income in exchange for capping their upside potential. The strategy is commonly used by long-term holders who want to generate additional income from their portfolio in sideways or mildly bullish market conditions. If the stock price stays below the strike price at expiration, the seller keeps the premium and the shares.
Example
“An investor owns 100 shares of AAPL at $150 and sells a $160 call option for $3 per share, collecting $300 in premium. If AAPL stays below $160 at expiration, the investor keeps both the shares and the $300 premium.”