Understanding a Covered Call
A covered call is an options strategy where an investor holds a long position in an asset (e.g., 100 shares of stock) and writes (sells) a call option on that same asset to generate income from the option premium. It's considered a neutral-to-bullish strategy.
- Maximum Profit: Achieved if the stock price is at or above the strike price at expiration. It is calculated as: `(Strike Price - Stock Purchase Price + Premium) * Number of Shares`.
- Breakeven Price: The stock price at which you neither make nor lose money. It is calculated as: `Stock Purchase Price - Premium Received`.