Unlocking Monthly Income with Covered Calls: An Essential Options Trading Strategy

If I told you there’s an options trading strategy that could help you generate monthly income, lower your risk of loss, and potentially outperform the market by 10x or even more, would you be interested? The good news is, such a strategy does exist, and it’s surprisingly easy to grasp.

For many, the world of options trading offers a path to greater financial independence, but navigating this landscape requires a solid strategy. Enter the covered call, a technique that balances potential rewards with manageable risks, promising a more stable journey toward investment success.

In this article, you will learn:

  • What a covered call is and how to execute it
  • The benefits of using covered calls in your trading strategy
  • Practical outcomes and scenarios of trading covered calls

Let’s dive into how covered calls work and how they can power up your trading arsenal.

Understanding Covered Calls

At its core, a covered call involves holding a stock and simultaneously selling a call option on that same stock. This strategy is deemed “covered” because you own the underlying stock that the option is sold against, protecting you from unlimited loss, unlike “naked” options trading where such coverage does not exist. To sell a covered call, one must own the stock in multiples of 100 shares, aligning one call option with every 100 shares owned.

Requirements for Entering a Covered Call

Entering a covered call strategy requires stock ownership in 100 share increments. For every 100 shares of stock you own, you can sell one call option.

Benefits of Covered Calls

Covered calls allow traders to to lower downside risk and enhance earning potential. For instance, purchasing a stock at $10 bears the risk of the stock value dropping to zero. However, by selling a call option and collecting a premium, say $1, you effectively reduce your cost basis to $9. Should the stock price plummet to zero, your loss is limited to $9 per share, mitigating the total potential loss.

Moreover, covered calls can surpass the usual market performance through the accumulation of option premiums, acting as a source of regular income. This approach not only offsets potential declines in stock value but can also amplify returns in a fluctuating market.

Key Outcomes of Trading Covered Calls

Trading covered calls can lead to three primary outcomes:

  1. Stock Price Increases: If the stock price rises above the strike price of the call option, the option may be exercised, requiring you to sell the stock at the agreed price. While this caps the maximum gain on the stock, the combined profit from the stock sale and the option premium can be significant.
  2. Stock Price Remains the Same: In sideways markets, covered calls allow traders to generate income through the option premiums, compensating for the lack of stock price movement.
  3. Stock Price Decreases: Should the stock price fall, the sold call option may expire worthless, allowing you to retain the premium and reduce your net loss. Although the stock’s value decreases, the option premium can offset some of the loss, providing a cushion against market downturns.


Covered calls are a cornerstone of smart options trading strategies, offering a way to generate income, lower risks, and potentially secure higher returns. By understanding and utilizing covered calls, traders can navigate the complexities of the market with increased confidence and a clearer strategy.

As you delve deeper into the realm of options trading, enhancing your expertise with covered calls is just the beginning. For those eager to expand their trading knowledge and connect with a community of avid traders, joining Covered Call Explorer training could be the catalyst for your trading evolution. This program offers comprehensive insights, strategies, and support to refine your trading skills and explore new opportunities with confidence.

Ready to elevate your options trading strategy and achieve greater financial success? Join Covered Call Explorer today and embark on a journey to unlock the full potential of your investment portfolio. Your path to becoming a savvy trader starts here.