The covered call, leg by leg, with a real trade
The hedg3 Team
A covered call is 100 shares with one call sold against them. The call pays a premium now and obliges you to sell the shares at the strike if the stock finishes above it. The premium cushions a drop in the shares; the price is that the gain stops at the strike.
Covered call
CreditIncome AgentThe numbers at expiry
- Max profit: $660 above $105: $5 of gain on the shares plus the $160 premium.
- Max loss: $9,840 if XYZ goes to $0: the $10,000 shares less the $160 premium.
- Breakeven: $98.40: the $100 share cost less the $1.60 premium.
- Collateral: $10,000: the 100 shares the call is sold against.
Why the max loss is $9,840
The shares carry the risk. They cost $10,000 and the call brings in $160. If XYZ went to $0 the call would expire and the shares would be worth nothing. The premium lowers the loss on any fall by $160, which is the hedge, and gives up every dollar above $105.
| Sell the 105 call | +$160 |
| Buy 100 XYZ at $100 | −$10,000 |
| Net cost | −$9,840 |
| The 105 call expires | $0 |
| 100 XYZ held, worth $0 | $0 |
| Paid at the open, net | −$9,840 |
| Max loss | −$9,840 |
Where assignment happens
Above $105 at expiry the call is assigned and the shares are sold at $105: called away, for $500 of gain plus the $160. Below $105 the call expires, the shares stay, and the call can be sold again. Buying the call back before expiry keeps the shares.
Winner: VTI, Sep 22 to Sep 29
| Leg | Contract | Price |
|---|---|---|
| Buy | VTI 100 shares | $381.29 |
| Sell | VTI 385 call | $2.80 |
- Opened
- Sep 22, 2026, 10:30 AM ET · VTI $381.29
- Call premium
- $2.80 · $280 received
- Target
- Buy back at $0.84 · +$196
- Stop
- Held to expiry
- Closed
- Sep 29, 2026, 11:09 AM ET · VTI $375.26
- How
- Target hit
VTI fell from $381.29 to $375.26 while the call was open: −$603 on 100 shares. The $195.98 from the call covered about a third of it.
VTI was at $381.29 when the 385 call was sold for $2.80 against 100 shares. VTI eased to $375.26 over the week, the call lost most of its value, and the target bought it back at $0.84 on Sep 29: +$195.98 on the call.
The shares lost more than the call made, and the premium still did its job: $195.98 that a reader holding the shares without the call would not have had. That is the hedge in a covered call, income that cushions a fall, paid for by capping the gain at the strike.
Every trade, on the record
The trade above is the Income Agent's most recent settled winner. Its record counts the call alone; the shares are held either way. Every covered call it closes, winners and losers, is on the public track record.
The full strategy page covers the Greeks and when it is used: covered call. Related: cash-secured put.
