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Covered calls explained: how option writers earn premium on owned stock
The strategy involves selling a call option on shares you already own, collecting a premium that you keep if the holder does not exercise.
Covered calls are an options income strategy where an investor sells a call contract on shares they already own, collecting a nonrefundable premium from the option buyer, according to Yahoo Finance.
The outlet explains that the call writer may be required to sell the underlying stock at a predetermined strike price if the holder exercises the option before expiration, while the buyer effectively pays for the right to buy the shares.
Yahoo Finance notes the “covered” part refers to the writer owning the underlying securities, contrasting it with a “naked” call where the writer does not own the stock.
It also outlines how strike price selection affects outcomes, saying lower strike prices typically generate more income but increase the likelihood of exercise, and describing trade variants such as “buy-write” and “overwrite.”