Covered Call As Income

The covered call is an excellent strategy for generating extra income on stocks in one's portfolio. This can be done by repeatedly selling a new covered call if the previous one expires worthless. Revisiting our previous example, with 100 shares of XYZ stock trading at $100 per share, we could sell the $110 strike option with an expiration 1 month out. This would generate an income of $5, or 5%. This would be our money regardless of what happened with the stock. If the option expires worthless, we could repeat the process, earning an additional income each month until we were called out. Assuming the covered call has a strike higher than the purchase price of the stock, the underlying would also have a profit.