• If you’re looking to generate passive income from stocks you already own, the covered call strategy is a great place to start. It’s one of the most popular options strategies among individual investors—and for good reason. Covered calls are simple, low-risk, and can generate steady monthly income.

What Is a Covered Call?

A covered call involves selling a call option against shares you already own. In exchange for agreeing to sell those shares at a set price (called the strike price), you receive a premium upfront. That premium is yours to keep, no matter what the stock does.

This strategy is "covered" because you're not taking on naked risk—you already own the underlying stock.

How It Works (Simple Example)

• You own 100 shares of AAPL at $170

• You sell a $175 call option for $2.50

• You collect $250 in premium (100 × $2.50)

If AAPL stays under $175: you keep the shares and the premium
If AAPL goes over $175: shares are sold at $175, but you keep the $250
If AAPL drops: you still keep the premium, which softens the loss

Why Investors Use Covered Calls

• 📈 Monthly income from premiums

• 📉 Lower cost basis over time

• 🧘‍♂️ Ideal for sideways or slow-growth markets

Covered calls are especially effective for long-term holders of large-cap stocks or ETFs like SPY, QQQ, or AAPL.

Covered Calls vs. Other Income Strategies

Unlike dividends, covered call income is controllable and customizable. You can select strike prices and expirations that match your goals. Some investors combine both: holding dividend stocks and layering on covered calls to boost yield.

Risks to Consider

• You may be forced to sell shares at the strike price if the stock rises

• You still take on downside risk if the stock falls

But with the right strike selection, many traders see this as a “get paid while you wait” approach.

Ready to Try It?

Use our Covered Call ROI Calculator to:

• Visualize profit and breakeven

• Compare annualized returns

• Test scenarios before placing a trade

TL;DR: Covered calls are a smart, beginner-friendly way to earn passive income from stocks you already own. With just 100 shares, you can start generating monthly cash flow — and you stay in control.