Options Strategies
Covered Call Writing
Strategies Short Call + Long Stock (Also referred to as Covered Call Writing)
Component Buy stock and sell at-the-money call
Potential Profit
  • When stock price is above break-even point
  • Limited to premium received
Maximum Loss
  • When stock price is below break-even point
  • Substantial, equals to break-even point minus stock price
Time Value Impact Positive
Break-even Strike price minus premium received
Remarks The combined position is a synthetic short put. Compared with holding stock only, loss would be reduced by the amount of premium received when the stock price drops. But profit is limited to premium received.
  Net Position +1 stock at 200 -1 Jan 200 Call

Component Buy ABC stock at $200 and sell ABC Jan $200 Call, receive $15
Net Premium Receive $15
Break-even $200-$15=$185
Profit when Stock price is above $185
Potential Profit $15
Potential Loss $185 - stock price
Time Value Impact Positive