Can You Lose Money Selling Covered Calls?

Yes — you absolutely can. Covered calls are often marketed as a “safe” way to generate income, but like any strategy, they come with real risks. Your biggest exposure is to the downside move of the underlying stock.

Covered calls combine a long stock position with a short call option. While the premium collected from selling the call provides limited downside protection, it does not eliminate risk. If the stock declines more than the premium received, you’ll take a net loss.

💥 Realistic Scenario:

Let’s say:

• You buy 100 shares of TSLA at $250

• You sell a $270 call and collect $3.00 in premium

• TSLA drops to $220 by expiration

You received $300 in premium, but your stock lost $3,000. Your net position is still down $2,700. The premium only softened the loss slightly.

📉 Main Risks:

• Stock price drops: The premium only reduces your cost basis. If the stock crashes, you lose.

• Opportunity cost: If the stock goes above the strike, you miss out on gains past that point.

• Assignment risk: The call could be exercised early, especially if it goes deep ITM and a dividend is involved.

• Tax implications: Depending on when and how you close the position, you might trigger short-term gains.

📊 Run the Numbers:

Use our Covered Call Calculator to model this risk. See your breakeven point, total P&L at expiration, and what happens if the stock drops 5%, 10%, or more.