Strategies
Covered Call (OTM)
Hold the stock, sell an OTM call, and collect premium as long as the outlook is not too aggressively bullish.
Description
What matters most
An OTM covered call suits existing stock positions when you want income while still leaving some room for upside above spot.
Premium lowers cost basis a little, but the stock remains the main risk. Above the strike, gains are capped.
Example: Coca-Cola
- Spot KO at 64.00 USD.
- Basis Share cost at 62.00 USD.
- Short call 68 call with 45 DTE for 0.85 USD.
- New basis 61.15 USD.
- Below 68 You keep the shares and the premium.
- Above 68 Shares can be called away with a max gain of 6.85 USD per share.
Alternative
Poor man's covered call
Instead of 100 shares, you use a deep ITM long-dated call and sell a shorter-dated OTM call against it.
- Example AAPL at 210 USD.
- Long call Jan-2027 140 call for 71.50 USD.
- Short call 225 call with 45 DTE for 2.20 USD.
- Capital Much lower than buying 100 shares outright.
- Key point Prefer high delta and as little remaining extrinsic value as possible in the long call.
Sources: DeltaValue, LYNX, CapTrader, tastylive.