Covered Call
Selling a call against shares you already own to generate income.
What is Covered Call?
You own 100 shares and sell a call against them. The premium is income and a small cushion, but you have capped your upside at the strike. A common income strategy whose real cost is opportunity, not cash.
Covered Call: a worked example
Own at $50, sell the $55 call for $1.50. Above $55 your shares are called away and you keep $6.50 total.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.