Options Jive

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Covered Call Mechanics

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

For this segment of Options Jive, Tom and Tony discuss the mechanics of Covered Calls. Covered Calls entitle selling a call against a long stock position for extra downside protection. We are exchanging upside potential in the stock for some extra premium.

We prefer to sell the call at the time of purchase of stock, and we like to do this when implied volatility is high. When IV is high, we can collect more excess risk premium from our call.

We can also ratio the number of calls to shares of stock to create positions with more or less upward bias. Covered calls allow us to make a variety of assumptions from just one basic strategy.

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