With fourth-quarter market action punctuated by volatility, uncertainty, and stretched valuations, investors are searching for ways to generate consistent income without abandoning their long-term holdings. One of the most reliable tools for doing exactly that is the covered call options strategy — a favorite among professional traders, retirees, and income-focused investors.
In his latest webinar, Barchart Senior Market Strategist John Rowland, CMT, explains how covered calls work, why traders use them, the risks involved, and how you can use Barchart’s Covered Call Screener to find opportunities in minutes.
If you’ve ever wondered how to earn income from stocks you already own, this is the strategy to learn.
A covered call is an options income strategy that involves:
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Owning shares of a stock or ETF
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Selling (to open) a call option against those shares
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Collecting the premium as your profit
When you sell a call, you are essentially getting paid upfront for agreeing to sell your shares at a specific price (the strike) by a specific date (the expiration).
If the stock stays below that strike price, the call expires worthless — and you keep:
Selling calls on a regular basis allows you to turn a static stock position into a cash-flow generator.
The premium collected from the sale of the covered calls can help to offset downside from routine market pullbacks.
This is especially true in flat or choppy markets where growth is minimal.
If your stock is lagging — like John’s Chevron (CVX) example — covered calls let you earn cash while it sits in a range, and ultimately can help to increase your exit price.
The biggest risk of a covered call is having your shares called away at expiration. This happens when the stock rises above your strike price, and you must sell your shares at that predetermined price.
For this reason, it’s best to sell covered calls on shares you wouldn’t mind selling – or might even prefer to unload.
For example:
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You own Chevron at $150
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You sell a $155 call and collect a $2.48 premium ($248 per contract)
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If Chevron rallies above $155 by expiration, your shares may be called away
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Adding the $2.48 premium collected, the effective exit price is $157.48
So assignment is not a “bad” outcome; it simply has to match your goals.
Covered calls thrive when implied volatility (IV) is elevated, but falling, and the stock is:
They do not work well when:
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A known potential price catalyst is imminent, like earnings
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You don’t want the shares called away
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The stock is in a strong breakout trend
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Implied volatility is low, but rising
This is why timing matters — and why pairing covered calls with technical analysis gives traders a true edge.
Barchart makes the covered call strategy easier with a number of proprietary tools. Use these to get started.
Filter opportunities by:
Visualize the trade’s breakeven point, volatility stats, max gain, and assignment risk.
See if the stock is likely to reach – or exceed – your sold call strike.
Know whether the stock is trending up, down, or in a hold zone — critical for strike selection.
Use IV Rank and Percentile to avoid getting blown up by volatility surprises.
Whether you’re managing:
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A retirement account
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Long-term holdings
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Underperforming stocks
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Dividend positions
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ETF exposure
Covered calls let you earn more from the shares you already own, while providing a disciplined framework for risk and return.
On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com