Covered Calls
A covered call means owning 100 shares and selling a call against them for extra income. Here is how it works, what you give up and a hypothetical example on Coca-Cola.
Income from shares you own
In a covered call, you own at least 100 shares of a stock and sell one call option on them. You collect the premium right away. In return, you agree to sell your shares at the strike price if the buyer exercises. The shares “cover” the obligation, so the risk is no bigger than owning the stock.
A hypothetical example
In our price data, Coca-Cola closed at $88.06 on Sept. 17, 2026. Suppose you own 100 shares and sell a two-month $95 call for a hypothetical $1.50, collecting $150. If the stock stays below $95, you keep the shares and the $150. If it rises above $95, your shares are likely called away at $95.
A real chart: Coca-Cola (KO) daily bars, Sept. 2025 to Sept. 2026, with a $95 example strike. Past performance does not predict future results.
Outcomes at expiration
| KO at expiration | Shares only | Covered call |
|---|---|---|
| $80 | −$806 | −$656 |
| $88.06 | $0 | +$150 |
| $95 | +$694 | +$844 |
| $105 | +$1,694 | +$844 (capped) |
Hypothetical: 100 shares bought at $88.06, $95 call sold for $1.50; ignores dividends and commissions.
The trade-offs
- You earn premium income in flat or slightly rising markets.
- Your upside is capped at the strike plus the premium.
- The premium cushions only a small part of a big drop.
- You may have to sell shares you wanted to keep, possibly triggering taxes.
Key takeaways
- Covered calls sell a call against 100 shares you own.
- You collect premium but cap your upside.
- The premium offers only a small cushion on declines.
- Shares can be called away at the strike.