What is a covered call?

A covered call is owning 100 shares of a stock and selling one call option against them, usually at a strike above your cost. You collect a premium up front in exchange for agreeing to sell your shares at the strike if the stock rises above it. It generates income on a holding and gives a small downside cushion, at the cost of capping your upside at the strike price.

What strike should I sell a covered call at after being assigned?

Sell at a strike above your cost basis, so that being called away locks in a gain rather than a loss. How far above is a trade-off: a strike closer to the current price collects more premium but is more likely to have your shares called away; a strike further out collects less but lets you keep more upside. Never sell a covered call below your cost basis unless you're deliberately exiting at a loss.

What is the maximum loss on a covered call?

The maximum loss is almost the entire position: your cost basis minus the premium received, times 100, if the stock falls to zero. The call premium cushions only the first sliver of a decline. A covered call reduces your cost basis slightly; it does not protect you against a large drop in the shares you own.

Can you lose money selling covered calls?

Yes. The premium offers a small cushion, but if the stock you own falls sharply you lose money on the shares, just like any holder — the covered call barely offsets it. You can also 'lose' upside: if the stock rockets past your strike, your shares are called away at the strike and you miss the rest of the move. Covered calls trade away the upside tail for steady income.

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General Option Selling

Covered Calls After Assignment: Getting Paid to Hold the Shares

4 July 2026 · 5 min read

You sold a cash-secured put, the stock fell to your strike, and you were assigned — you now own 100 shares at the price you chose. That's not the trade going wrong; it's the wheel turning to its second half. Now you sell a covered call: you collect another premium for agreeing to sell those shares at a higher price, getting paid to hold them until they're called away. Here's exactly how it works, and the two risks worth respecting before you do.

If you're arriving here cold, the first half is the cash-secured put, and the full loop is the wheel.

The situation after assignment

Carry forward the example from the earlier posts. You sold a $45 put for $0.60, the stock dropped, and you were assigned 100 shares at $45. Because you'd already pocketed the $0.60 premium, your effective cost basis is $44.40 per share — $4,440 of stock you wanted, bought at a price you set.

You have three honest choices now: hold the shares and wait, sell them, or get paid to hold them. The covered call is the third.

What a covered call is

A covered call is two positions held together: long 100 shares + short one call at a strike above your cost. The call is "covered" because you already own the shares you've promised to deliver — there's no naked risk of having to buy them at any price. For selling that call, you receive a premium immediately.

You're agreeing to a deal: if the stock climbs above the strike, I'll sell my shares there; if it doesn't, I keep the premium and the shares. Either way the premium is yours.

The mechanics, with the maths

You own at $44.40. You pick a strike above that — say $48 — and sell the call for, say, $0.55 ($55 for the contract). Two numbers define the trade:

Maximum profit, if the shares are called away at $48: (strike − cost) + premium = (48 − 44.40) + 0.55 = $4.15 per share, or $415.
Breakeven on the position now: cost − premium = 44.40 − 0.55 = $43.85. Below that you're in the red on the shares.

Then one of three things happens by expiry:

Outcome	What happens	Your result
Stock above $48	Shares called away at $48	Max profit $415, back to cash — restart the wheel
Stock between $43.85 and $48	Call expires worthless	Keep the $55, keep the shares, sell another call
Stock below $43.85	Call expires worthless	Keep the $55, but you're now down on the shares

If the call expires, your cost basis ratchets down again — to $43.85 — and you sell another call next month. Each premium lowers the price at which you break even, which is the quiet compounding the wheel relies on.

The two risks, shown first

A covered call is income, not insurance. Be clear-eyed about what it doesn't do.

It caps your upside. The same call that pays you also sells your gains above the strike. If the stock you own gaps to $60 on good news, your shares leave at $48 and you watch the other $12 go without you. You earned the premium and a modest gain and forfeited the tail. On a name you'd have loved to let run, that's a real cost — capped upside is the price of the income.

It barely protects your downside. Your maximum loss is essentially your cost basis minus the premium, times 100 — $43.85 × 100 = $4,385 if the shares go to zero. The $55 cushions the first fraction of a fall and nothing after it. If the stock drops to $30, you've lost on the shares like any holder; the covered call shaved a little off the top and no more. The covered call lowers your cost basis; it does not hedge the position.

Put plainly: you're long the stock with all of its downside, minus a thin premium, and you've sold away its best upside. That's a sound trade on a business you're content to own and would happily sell at the strike — and a poor one if you're only there for the premium.

What the Greeks say you're holding

Stacked together, a covered call leaves you with a familiar income-seller's profile (the same shape as selling the put — see the Greeks explained):

Net positive delta, but less than owning the shares outright — the short call offsets some of your long-stock exposure.
Positive theta — time decay on the call you sold is your income.
Negative vega — a spike in implied volatility raises the value of the call you're short, working against you.
Negative gamma — your effective exposure shifts against you as the stock moves, the convexity cost of being a seller.

Choosing the strike

Two rules and a dial.

Always sell above your cost basis. A strike under $44.40 here would lock in a loss if you're called away — you'd be paying yourself a premium to sell your shares cheaply. Sell above it so an exit is a win.
Mind the dividend. American-style calls can be exercised early, most often when an in-the-money call is about to miss a dividend — the buyer exercises to capture it. If you're holding through an ex-dividend date with an ITM call sold, early assignment is a live possibility. (If you're selling from Singapore, note that owning the shares is also the moment US dividend withholding switches on at 30% — assignment changes your tax position, not just your delta.)
The dial is how far out of the money you go. Closer to the price means a fatter premium and a higher chance your shares are called away; further out means less premium but more room to keep the stock and its upside. There's no single right answer — it depends on whether you'd rather harvest income or hold the name.

Closing the loop

When the shares are finally called away, you're back to cash with your gains and every premium you collected along the way — and you're exactly where the wheel started. Sell another cash-secured put on a stock you'd own, and go again. Cash → put → shares → call → cash.

At levelbox.ai we focus the screener on the first half — finding the cash-secured-put candidates worth owning, with the yield, breakeven and maximum loss shown up front — because that's where the decision is hardest. The covered-call half is the easier, mechanical follow-through once you own a business you were happy to buy. As ever: analytical, educational tooling, not investment advice.

Common questions

What is a covered call?: A covered call is owning 100 shares of a stock and selling one call option against them, usually at a strike above your cost. You collect a premium up front in exchange for agreeing to sell your shares at the strike if the stock rises above it. It generates income on a holding and gives a small downside cushion, at the cost of capping your upside at the strike price.
What strike should I sell a covered call at after being assigned?: Sell at a strike above your cost basis, so that being called away locks in a gain rather than a loss. How far above is a trade-off: a strike closer to the current price collects more premium but is more likely to have your shares called away; a strike further out collects less but lets you keep more upside. Never sell a covered call below your cost basis unless you're deliberately exiting at a loss.
What is the maximum loss on a covered call?: The maximum loss is almost the entire position: your cost basis minus the premium received, times 100, if the stock falls to zero. The call premium cushions only the first sliver of a decline. A covered call reduces your cost basis slightly; it does not protect you against a large drop in the shares you own.
Can you lose money selling covered calls?: Yes. The premium offers a small cushion, but if the stock you own falls sharply you lose money on the shares, just like any holder — the covered call barely offsets it. You can also 'lose' upside: if the stock rockets past your strike, your shares are called away at the strike and you miss the rest of the move. Covered calls trade away the upside tail for steady income.