Covered call

100 shares you own, and one call written against them. You collect a premium now and accept that if the stock finishes above the strike, your shares are sold at that strike. You are selling the upside above a price you choose.

A worked example

You own 100 shares bought at $95. The stock is now $100. You write one call at the $105 strike, 30 days out, and collect $2.00 per share — $200.

	Value	Where it comes from
Premium collected	$200	$2.00 × 100, yours immediately
Break-even	$93.00	basis $95 − $2 premium
Maximum profit	$1,200	($105 − $95) × 100 + $200, if assigned
Maximum loss	$9,300	if the stock goes to zero: basis less the premium

At expiry

Below $105 — the call expires worthless. You keep the shares and the $200, and can write another.
Above $105 — the shares are called away at $105. You make $1,200 and no more, however high it went.
Below $93 — you are losing money, exactly as you would holding the shares alone, softened by the $200.

What you actually traded

Premium now, in exchange for a ceiling The premium is certain and small; the upside you sold is uncertain and potentially large. That trade is good when the stock drifts, ordinary when it falls, and bad when it runs. A run is the case people underestimate, because the loss is invisible — it is profit you never made rather than money that left the account.

The downside is essentially unchanged. A covered call is not a hedge: $2.00 against a $100 stock covers a 2% fall and nothing more. If your worry is the stock dropping, this is not the structure that addresses it.

The rule about where the strike goes

Never write below your cost basis. In the example the basis is $95, so a $92 strike is off limits: assignment there locks in a loss on the shares that the premium is very unlikely to cover. This constraint is why the dashboard floors every covered-call candidate at max(spot, cost basis), and why it cares so much about the basis being the true one — see Income Rolls for the assignment-adjusted basis problem that makes brokers report it too low.

Two things that surprise people

Early assignment before a dividend

An in-the-money written call can be exercised the day before the stock goes ex-dividend, because whoever holds the call wants the dividend. You lose the shares earlier than expected and do not receive the dividend. The dashboard flags ex-dividend dates falling inside a written call's life for exactly this reason.

Rolling is not free

When the stock runs past your strike, buying the call back costs more than you collected. Rolling up and out usually recovers some of that, but a roll that produces a net debit is paying to postpone assignment — sometimes right, never automatic.

Seeing it in the dashboard

Your shares and the written call appear as one position with one break-even and one payoff curve on the Portfolio page. Candidate strikes to write, and rolls of what you already wrote, are on Income Rolls. To see what a month of holding one feels like — including the week the stock is at $104 and you are wondering whether to roll — fly it on Flight.