1. What it is
Hold the underlying and sell a call against the corresponding number of shares. For a 100-share contract, one short call needs 100 covering shares.
2. Why use it
Exchange some stock upside for option premium while retaining stock downside.
3. How the numbers work
View example
- Buy the underlying at 100
- Sell 1 × Call · Strike 105
- Option premium received
- 2
- Total initial outlay
- 98
- Expiration breakeven
- 98
- Maximum expiration profit
- 7
- Maximum expiration loss
- 98
- Underlying at expiration 100 → Profit 2
- Underlying at expiration 110 → Profit 7
4. How it changes
Stock adds positive delta. The sold call reduces that delta and adds negative gamma and vega, usually with positive theta.
5. What to watch for
The premium only cushions the stock loss. Shares can be called away, and early assignment may occur. A short call without the shares is not covered.
Evaluate the shares and option together. The options-leg list alone does not prove that you own the shares needed to cover the position.
Examples use illustrative entry prices and amounts per underlying unit, before costs. Contract amounts require the contract multiplier. Expiration payoffs assume the illustrated legs remain intact; earlier position values and exercise or assignment outcomes can differ.