Covered Call Calculator

How to use the Covered Call Calculator

To use the covered call calculator effectively, follow these steps:

1. Enter the Stock Price – This is the price at which you bought (or plan to buy) the underlying shares.
2. Enter the Call Strike Price – The price at which you're willing to sell the shares if assigned.
3. Enter the Premium Received – The amount you collected for selling the call option.
4. Enter the Expiration Date – The date the option expires.
5. Review the Calculated Profit and Loss

Understanding the Covered Call Options Strategy

A covered call, also known as a buy-write, involves buying (or already owning) shares of stock and simultaneously selling a call option against those shares. This strategy is ideal for investors with a neutral-to-moderately bullish outlook who want to generate income through option premiums while potentially selling their stock at a higher price.

• Risk: Limited to the downside of owning the stock (offset slightly by the premium).
• Reward: Capped at the strike price plus the premium received.
• Breakeven: Stock purchase price minus the premium received.

This strategy is often used to generate extra income from a stock that is expected to remain flat or rise slightly before expiration.

Example: Covered Call Options Profit and Loss Calculation

Let’s say you purchase 100 shares of XYZ stock at $50 per share and sell a 1-month call option with a $52 strike price for $1.50. The calculator will display this outcome in an interactive table, showing profit and loss at various price levels over time.

• Premium received: $150 (1.50 × 100 shares).
• Max Profit: $350 – if the stock is above $52 at expiration.
• Breakeven: $48.50 – calculated as $50 - $1.50.
• Max Loss: $4,850 – if the stock goes to zero, you lose $5,000 minus the $150 premium.

The calculator will display this outcome in an interactive table, showing profit and loss at various price levels over time.

When to use a Covered Call Strategy

A covered call is ideal when:

• You already own the stock or plan to hold it.
• You believe the stock will stay flat or rise slightly.
• You want to generate additional income on long stock positions.
• You're comfortable with the possibility of having your shares called away.

It is not suitable if you expect a large upside move in the stock (as your profit is capped) or if the stock is highly volatile to the downside.