About Brian Overby
Brian Overby is a distinguished options trading authority and educator with more than three decades of elite experience in the financial servrvices industry, commencing in 1992. He has heldsenior leadership and instructional roles at the pinnacle of the options ecosystem: senior staff instructor at the Chicago Board Options Exchange (CBOE), director of training fofor Knight Trading Group (one of the world's foforemost market makers), and options trading specialist at Charles Schwab. This is complemented by his tenure as senior options analyst and strategist at Ally Invest.
As founder of Options Playbook Inc. and best-selling author of The Options Playbook (Expanded 2nd Edition), Brian has established himself as a preeminent resource in demystifying complex options strategies for independent investors and professionals alike. Through thousands of seminars delivered worldwide, hundreds of authoritative articles, and frequent commentary in premier financial media (including the Wall Street Journal, Barron’s, Reuters, Bloomberg, CNBC’s Fast Money, and Fox Business), he has empowered thousands to deploy options with precision to amplify returns and safeguard portfofolios across diverse market regimes.
His unparalleled institutional pedigree and commitment to clear, jargon-free education position him as a trusted master in bridging sophisticated theory with profitable, real-world execution.
Long-term stock ownership usually comes with a lot of patience, but instead of waiting idly for prices to rise, there’s a way to put your shares to work and generate income in the meantime.
Get Paid While You Wait
A covered call gives you a way to get paid while you wait.
This strategy allows you to generate income from shares you already own by selling call options against them. It’s one of the most practical ways for investors to begin using options without straying too far from familiar ground. And when used correctly, it can add consistency and discipline to your portfolio.
Let’s walk through how covered calls work, why Gotrade customers may want to consider them, and what to watch out for along the way.
What Is a Covered Call?
A covered call is an income-producing strategy where you sell, or “write,” a call option against shares of stock you already own. Typically, you sell one call contract for every 100 shares of stock.
The seller of an option is often called the writer of the contract. When someone sells a call option, they are, in theory, creating, or writing, the contract and collecting cash, known as the option premium. In return, they take on the obligation to fulfill the deal if the buyer chooses to exercise the rights in the contract.
That idea goes back to the early days before modern exchanges, when contracts were literally written. The term stuck and it’s still used today.
In simple terms, the seller gets the cash, takes on the obligation, and the buyer gets a choice.
Because you already own the shares, your obligation is covered. There’s no scrambling to find stock at the last minute. You simply deliver shares you already hold if assignment occurs.
Why Investors Use Covered Calls
The primary motivation is to generate income now.
Covered calls are often used when you’re long-term bullish on a stock, but don’t mind selling the stock if it moves higher in the near future. How much higher? That’s determined by the strike price of the call option contract you sell.
In that situation, selling a call can help you earn additional income while you continue to hold the shares.
Covered calls can:
Generate extra income beyond dividends
Help offset small declines in stock price
Encourage disciplined decision-making by defining exit prices in advance
If the stock price stays below the strike price, the option expires worthless. You keep the premium and the shares. If the stock rises to the strike price, you sell the stock at the higher price and keep the premium.
Either way, you’re making intentional choices instead of reacting emotionally.
A Simple Covered Call Example
Imagine you own 100 shares of a stock trading at $80. You like the company, but don’t mind selling the stock at a higher price than it’s currently trading.
You decide to sell a call option with a strike price of $85 that expires in about 30 days. Let’s say you collect a $1.00 premium (or $100, before commissions).
From here, one of three things will happen.
Scenario 1: The Stock Stays Below the Strike Price
If the stock stays below $85 at expiration, the option expires worthless. You keep the entire premium and continue to own the shares. If you still like the stock, you can repeat the process and sell another call.
This is how many investors generate ongoing income from stocks they already own.
Scenario 2: The Stock Rises to the Strike Price
If the stock rises above $85, the call option will likely be exercised and your shares will be called away.
That might sting a little if the stock continues higher, but remember you made a conscious decision. You sold the call knowing you were willing to sell the stock at that price.
In this scenario, you keep:
The option premium
The profit on the stock up to the strike price
You may have capped your upside, but you didn’t miss out. You executed the plan exactly as designed.
Pat yourself on the back. Or have someone else do it if you’re not very flexible.
Scenario 3: The Stock Goes Down
If the stock declines, the premium you collected helps cushion the loss but it doesn’t eliminate it.
The primary risk in a covered call comes from owning the stock, not from selling the option. If the stock drops sharply, the option premium will only offset part of that decline.
The good news is you’re not locked into the position. If the stock drops and your outlook changes, the call option you sold will likely decline in value as well. You can buy it back for less than you sold it for, remove your obligation, and then decide what to do with the stock.
Having a plan in advance makes these decisions much easier.
Choosing the Right Stock
When getting started with covered calls, focus on stocks you already own and would be comfortable selling at a higher price.
Keep an eye on the company’s calendar, as events like earnings can influence option premiums. Elevated premiums often signal the potential for larger price moves after the event, so treat this as helpful context and factor it into your decision.
Picking a Strike Price and Expiration
Most investors sell calls with strike prices above the current stock price. This gives the stock some room to rise before being called away.
As a starting point, many investors look at expirations around 30 to 45 days out. This time frame often provides a reasonable balance between premium received and predictability.
Remember: with options, time is money. The further out you go, the more premium you’ll receive but the harder it becomes to forecast what might happen.
The key is selecting a strike price where you’d genuinely be comfortable selling the stock.
Assignment Isn’t the End of the World
If your shares are called away, you’ve been assigned. This happens through a random process handled by the options clearing system.
Assignment doesn’t mean something went wrong. It simply means your plan worked. You sold stock at a price you preselected and collected income along the way.
Your obligation is coming due, so you might want to do yourself a favor and stop checking the stock price if it keeps climbing.
Your personal situation matters, so be sure you understand your obligation ahead of time. If the stock is above your strike price before or at expiration, you may have to make good on the contract and sell your shares at the predetermined price to the option holder.
A Few Final Thoughts
Covered calls aren’t a get-rich-quick strategy. They’re about improving consistency, generating incremental income, and making deliberate decisions.
For Gotrade customers who already own stocks, covered calls can be a practical way to put those shares to work. Just remember:
Only sell calls on stocks you’re willing to sell
Know what you’ll do if the stock goes up, down, or nowhere at all
Enter every trade with a plan
Get paid while you hold, but make sure you’re holding for the right reasons.
