Definition

Writing a covered call consists of selling an option call while simultaneously owning the underlying stock. An investor buys a stock and then agrees to sell the stock to someone else at a specified price (strike price). In return for this, the investor receives a premium (option price). For example, the investor purchases 100 shares of Intel (INTC) for $50 a share and then sells a $50 call for $4 per share or $400 total. We know this concept is initially confusing, but read on and it will become clear.

Here's the math: 100 shares are purchased for $50 per share, for a total of $5000. The investor then sells the option and receives back $400 (100 shares x $4 per share). The immediate return on this investment is 8.0% (Return = Income/Investment).

1. Introduction
2. Definition
3. Understanding Options
4. Key Terms
5. The Basic Concept
6. The Simplified Covered Call Process
7. Benefits of Covered Call Writing
8. Risks of Covered Call Writing
9. Calculating A Return
10. Getting Started