A covered call allows you, as an owner of a stock, to sell at a specified price.

For instance, let’s say you buy 100 shares of NT and it’s trading at $3.21 and you write a covered call for December at a strike price of $4.00. If you are more than happy to sell at $4.00 and you don’t think it will ever get exercised… now’s the time to write a covered call.

1. You get the premium (let’s say $250) and get to keep the premium regardless of what happens.
2. Remember, you wrote it at $4.00, giving anyone who purchased a call the “option” to purchase the stock at $4.00.
• If it get’s to $4.50
1. You get to keep the $250 and you sell your stock at $4.00 giving you a gross of $400 + $250. And a net sell of $650 – $321 = $291.
• If it get’s to $3.00
  1. You get to keep the $250 and they never buy your stock… But it doesn’t matter… you sell it as a market order anyways

Worst Case Scenario: The stock tanks to $1.00 and you get to keep the premium but it doesn’t even begin to offset the loss