Interactive Covered Call Strategy (100 Shares)

What is a Covered Call?

A Covered Call strategy involves holding a long position in a stock and selling a call option on the same stock. This strategy generates income through the option premium while limiting upside potential.

One Call Option Contract typically covers 100 shares. In this example, we assume:

• You own 100 shares of stock.
• You sell one call option contract (which covers 100 shares).
• You receive a premium per share for selling the call option.

How Payoff Works:

If the stock price stays below the strike price, the option is not exercised, and you keep the premium plus the stock value. If the stock price rises above the strike price, the option buyer exercises the call, and your upside is capped because you must sell the shares at the strike price.

Payoff Formula:

Covered Call Payoff = min(S_T, K) × 100 + Premium × 100 − Initial Stock Cost