Covered calls are the safest options strategy for beginners, generating 2-4% monthly income on stocks you already own. Here is how they work and when to use them.
How Covered Calls Work
- Own 100 shares of a stock (e.g., Apple at $200 = $20,000)
- Sell a call option at a higher strike price (e.g., $210)
- Collect premium: $300-600 per contract per month
- If stock stays below $210: keep premium + shares
- If stock rises above $210: sell shares at $210 + keep premium
The trade-off: you cap your upside but generate consistent income. Ideal for stocks in your portfolio that you believe will trade sideways or rise modestly over the next 30 days.
