The Notorious Side of Covered Calls: When Playing It Safe Costs You Big

Covered calls are often hailed as a conservative strategy for generating steady income. For investors holding stagnant stocks, it can feel like a no-brainer: collect premiums while waiting for the underlying to move. But as I recently learned with my SOFI position, this strategy can come with a painful trade-off—especially when the unexpected happens.

For months, SOFI barely budged. The stock traded in a tight range, going nowhere fast. To make my capital work harder, I started selling covered calls—collecting premiums while waiting for the stock to wake up. It was smooth sailing… until it wasn’t.

Out of the blue, SOFI spiked—hard. The rally blew right past my strike price, and the options I’d sold were suddenly deep in the money. I scrambled to roll the position—either to a higher strike or a later expiry—but the premiums no longer worked in my favor. The math just didn’t add up. In the end, my shares were called away.

Sure, I made some profit. The strike was above my cost basis, so I walked away with a gain—plus the premiums I’d previously collected. But here’s the sting: SOFI kept climbing. It now trades well above my covered call strike, and all that upside? Gone. I capped my gains and missed out on a breakout I’d waited months for.

Covered calls can be great—until they aren’t. They work best in sideways or modestly bullish markets. But when volatility returns and stocks finally run, you might find yourself on the wrong side of a self-imposed ceiling.

The lesson? Income today can come at the cost of tomorrow’s growth. Use covered calls wisely—and never forget what you’re giving up in return