To The Moon

🐶 Introduction: Why I Like Covered Calls

When I own 100 shares of a good company, one of the strategies I like to consider is selling a covered call.

@Shernice軒嬣 2000 

The reason is simple: owning 100 shares gives me the ability to sell one call option against those shares and collect an option premium.

For a beginner, the important thing to understand is that I am not trying to predict every movement in the stock market. Markets can move because of earnings, interest rates, tariffs, Trump announcements, geopolitical events, economic data, analyst upgrades, product launches and unexpected bad news.

There will always be something that moves the market.

Instead of simply holding my shares and watching the price move up and down, I can potentially use covered calls to generate additional income while I wait.

However, a covered call is not free money. I am giving someone else the right to buy my shares from me at the strike price before or at expiration. Therefore, I need to be comfortable selling my shares at that price.

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📚 Step 1: What Exactly Is a Covered Call?

A covered call consists of two things:

1️⃣ I own 100 shares of a stock.

2️⃣ I sell one call option against those 100 shares.

For example, suppose I own 100 shares of a stock at $200.

I could sell a call with a $220 strike price and receive a $3 premium.

Because one option contract normally represents 100 shares:

$3 × 100 = $300 premium

I immediately receive the option premium, although the final profit and risk depend on what happens to the stock and the option before expiration.

If the stock stays below $220 at expiration, the option may expire worthless and I keep the premium.

If the stock rises above $220, my shares can potentially be called away at $220.

This is why I always remind myself:

A covered call is an income strategy, but it also limits some of my upside.

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🚦 Step 2: When Do I Consider Selling a Covered Call?

I don’t believe that I should blindly sell a covered call every single time I own 100 shares.

Instead, I look at the market environment, valuation, upcoming catalysts and the price I am willing to sell my shares at.

One situation I particularly like to consider is when a stock has experienced a strong rally because of positive news.

For example, imagine a stock jumps from $200 to $215 after the market receives unexpectedly positive news.

Investors become excited.

The stock moves quickly.

Implied volatility can also increase because traders expect more movement.

At this point, I can ask myself:

“If the stock reaches $225 or $230, would I actually be happy selling my shares?”

If the answer is yes, I may consider selling a call above the current market price.

The important part is that the strike price should be a price where I am genuinely comfortable potentially selling my shares.

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📰 Step 3: Why News Creates Opportunities

One reason I like options is that markets are constantly reacting to new information.

Take the recent U.S.-Canada tariff developments as an example.

On August 21, the United States and Canada failed to reach a trade agreement, after which the U.S. announced that it would impose 50% tariffs on certain Canadian imports. Canada said it would suspend negotiations and retaliate dollar-for-dollar.

This is exactly the type of headline that can suddenly change market sentiment.

One day investors can be optimistic because they expect lower tariffs or a trade agreement.

The next day, negotiations can break down and markets can become nervous.

This creates a very important lesson for beginners:

Good news doesn’t mean the stock will keep going up forever.

And:

Bad news doesn’t automatically mean the company is broken.

Markets constantly move between optimism and fear.

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🟢 Step 4: Selling Calls After Good News

This is where my covered-call strategy becomes interesting.

Suppose I own 100 shares of a company at $200.

The company announces excellent news.

The stock jumps to $220.

Instead of becoming overly excited and assuming the stock will continue going straight up, I can consider selling a covered call.

For example:

Stock price: $220

Shares owned: 100

Call strike: $235

Premium: $4

I could potentially collect:

$4 × 100 = $400

Now I have created an additional potential source of return.

If the stock remains below $235 by expiration, I may keep the shares and the premium, assuming the option expires worthless.

If the stock rises above $235 and I am assigned, I sell my shares at $235.

That means I still participate in the stock’s rise from $200 to $235, while also keeping the premium, before considering fees and taxes.

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🔴 Step 5: What Happens When Bad News Arrives?

This is where I need to be careful.

Suppose I sold the $235 call for $4.

Then suddenly bad news hits the market.

The stock falls from $220 to $205.

The call option could become much cheaper.

Maybe the option that I sold for $4 is now worth $1.50.

I could potentially buy back the call for $1.50.

My option profit would then be:

$4.00 − $1.50 = $2.50

With 100 shares:

$2.50 × 100 = $250

I have closed the option position and removed the obligation associated with the call.

This is one way I can navigate changing market conditions.

But there is an important warning:

I should never assume that every piece of bad news will make the option cheaper.

Sometimes bad news can cause volatility to explode, and the option may not fall as much as expected—or could even become more expensive depending on the strike, expiration and market conditions.

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🔄 Step 6: My Basic Covered-Call Cycle

The way I think about it is:

🟢 Good news → Consider selling calls

The stock rallies.

Investor optimism increases.

The stock may become temporarily extended.

I look at calls above the current price and ask whether I am comfortable selling my shares at the strike.

🔴 Bad news → Consider buying back calls

The stock falls.

The call may lose value.

If I can buy back the call for substantially less than the premium I received, I can potentially lock in an option profit.

🔄 Then I reassess

I don’t immediately sell another call just because I bought one back.

I look at the stock again.

Has the stock recovered?

Is another catalyst approaching?

Is the valuation attractive?

Would I still be happy selling my shares at the new strike?

This turns covered calls into an ongoing process rather than a one-time trade.

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💰 Step 7: The Most Important Question — Am I Happy to Sell?

This is probably the biggest lesson I can give a beginner.

Before selling a covered call, I ask:

“If the stock rises dramatically and my shares are called away, will I regret selling them at this strike?”

If the answer is yes, I probably shouldn’t sell that call.

For example, if I own NVIDIA at $200 and I believe it could realistically reach $300 in the near future, selling a $210 call might not make sense for me.

The premium could look attractive, but I am giving away a significant amount of potential upside.

Instead, I might choose a higher strike, a different expiration or simply hold the shares.

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⚠️ Step 8: Covered Calls Are Not Risk-Free

Covered calls reduce some risks, but they do not eliminate the main risk of owning shares.

If I own 100 shares at $200 and the stock collapses to $100, collecting a $3 premium does not protect me from the $100 decline.

My shares have lost approximately $10,000 in value.

The $300 premium is only a small offset.

This is why I only want to sell covered calls on companies I am comfortable owning.

I also need to understand that buying back a call after bad news can create a loss on the option if the call price has increased.

Options are not guaranteed income.

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🧠 Step 9: My Beginner Checklist

Before I sell a covered call, I ask myself:

1️⃣ Do I own at least 100 shares?

2️⃣ Am I happy to potentially sell those shares?

3️⃣ What price would make me comfortable exiting?

4️⃣ Is there major upcoming news or earnings?

5️⃣ Is the strike price far enough above my current share price?

6️⃣ Is the premium worth giving up some upside?

7️⃣ What happens if the stock suddenly falls?

8️⃣ What happens if the stock suddenly jumps 20%?

If I cannot answer these questions, I don’t rush into the trade.

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🐶 My Simple Philosophy

For me, covered calls are about turning volatility into an opportunity.

The market will always have good news and bad news.

One week investors may celebrate lower tariffs and improved trade negotiations.

The next week, negotiations can collapse and new tariffs can be announced.

I cannot control those headlines.

What I can control is how I structure my position.

When I already own 100 shares of a company that I am comfortable holding, I can potentially sell calls at prices where I would be happy to take profits.

Then, if the market experiences a pullback and the call becomes cheaper, I can consider buying it back and closing the position.

The key is not trying to predict every headline.

The key is having a plan.

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🎯 Final Beginner Rule

My simple rule is:

Own 100 shares → wait for a price I am comfortable selling → sell an out-of-the-money call → collect premium → monitor the stock and news → consider buying back the call if its value falls significantly → reassess before selling another call.

But I always remember that the strategy has trade-offs.

If the stock suddenly explodes higher, my upside can be capped.

If the stock crashes, the premium only provides limited protection.

Therefore, I don’t sell covered calls simply because I want “free income.”

I sell them when the strike price, premium, expiration and my view of the stock all make sense together.

For a beginner, that mindset is much more important than chasing the highest premium.

Covered calls are not about predicting the market perfectly. 📈

They are about having 100 shares, having a target price, and using options to potentially generate additional income while I wait. 🐶💰

Educational content only, not financial advice. Options involve risk, including loss of capital and the possibility of having shares called away. Investors should understand the mechanics, assignment risk, volatility and tax implications before trading options.

Find out more here: Tiger Brokers | Market Rebound: Rally or Pullback? Capture potential opportunities. Stay Flexible with Options

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