The basic idea
A covered call is when you own at least 100 shares of a stock and sell someone else the right to buy those shares from you at a set price (the "strike") by a certain date. In exchange, you collect a premium upfront — it's "covered" because you already own the shares you might have to sell, unlike a naked call.
A concrete example
Why people do this
It's a way to generate extra income on stock you're already holding — useful if you don't expect major near-term upside, or if you'd be comfortable selling at a modest gain anyway.
The real risk
The main trade-off is capping your upside — if the stock rallies well past your strike, you miss out on gains above that level, since your shares get sold at the strike price regardless of how high the stock actually goes.
The payoff, visually
If you connect a brokerage account (optional, free), your Positions page shows exactly how many covered-call contracts your current share holdings could support — see our methodology page for how the engine scores covered call opportunities like this one.
This is educational information only — see our disclaimer.