Covered Calls – Synthetic Dividends

A covered call is an options trading strategy where an investor:

Owns the underlying stock

Sells a call option on that same stock.

This strategy is called “covered” because the investor owns the stock and can deliver it if the call option is exercised.

How It Works

You sell a call option to a counter party with a specific strike price and expiration date. You are giving the buyer an option to purchase your asset at a stated price.

You collect the option premium upfront. Generating income.

You hope you aren’t assigned, perhaps. However, if you are wishing to exit a position this can be a useful tool to generate income while accomplishing your long-term goal of repositioning your portfolio.

-Zac