Covered Call Calculator

A covered call is one hundred shares plus a short call against them. The call brings in premium that lowers the cost of the shares and softens a small decline, in exchange for giving up any gain above the strike. If the stock finishes above the strike at expiry the shares are called away at that price, premium kept.

When it is used

Investors write covered calls on shares they are content to hold and would also be content to sell at the strike. It suits a view that the stock will drift sideways or rise modestly over the life of the call. Writing a strike well above the price keeps more upside and collects less premium; writing close to the price does the reverse. Many repeat the trade monthly, which is why it is sometimes described as renting out the shares.

How it makes and loses money

The position behaves like the shares with a cap. Time passing and implied volatility falling both help, because they shrink the short call. A sharp rally hurts in the sense of regret rather than loss: the shares gain up to the strike and no further. A sharp fall loses almost as much as the shares alone, less the premium.

What to check in the grid

Look along the row at the strike to see how the profit flattens, and at the rows well below the price for how little the premium cushions a real drop. Compare an expiry a few weeks out with a few months out: the longer call pays more premium but delays the chance to write again.