---
description: "A buy-write strategy combining long stock with a short call at strike K, generating income by capping upside in exchange for premium collected."
tags: [options, income, covered, bullish]
---

# Covered Call

**Section**: 2.2 | **Asset Class**: Options | **Type**: Income

## Overview
The covered call (a.k.a. "buy-write") strategy amounts to buying stock and writing a call option with strike K against the long stock position. The trader's outlook is neutral to bullish. It has the same payoff as writing a naked put and allows the trader to generate income by periodically selling OTM call options while maintaining the long stock position.

## Construction
- Buy 1 share of stock at price S0
- Sell 1 call option at strike K, receiving net credit C

Net position: long stock + short call

## Payoff Profile
f_T = S_T - S_0 - (S_T - K)+ + C = K - S_0 - (K - S_T)+ + C

- Breakeven: S* = S0 - C
- Max profit: P_max = K - S0 + C  (achieved when S_T >= K)
- Max loss: L_max = S0 - C  (if stock goes to zero)

## Key Conditions / Signals
- Neutral to mildly bullish outlook on the underlying
- Elevated implied volatility makes collected premium more attractive
- Suitable for income generation when the trader is comfortable capping upside at K

## Notes
The covered call strategy is equivalent to writing a put option (short/naked put) in terms of payoff. Upside is capped at K; downside risk is the full cost of the stock minus premium received.