🎁Still Holding NVIDIA? A Smarter Way to Think About Covered Calls
US stocks have recently turned more volatile as oil prices, Treasury yields and other macro factors weigh on sentiment. At the same time, tech stocks are moving in very different directions, with NVIDIA showing relative strength while some semiconductor names pull back.
For long-term investors, this creates a familiar dilemma:
You still believe in the stock, but you may not expect a sharp rise in the near term. So what can you do while holding it?
A Covered Call is one common options strategy.
It combines holding shares with selling a Call option. You keep your stock, set a price at which you are willing to sell, and receive an option premium upfront.
But the premium is not “risk-free income”.
The key trade-off is simple:
Give up part of the future upside in exchange for premium today.
1. Using NVIDIA as an Example
Suppose you own 100 shares of NVIDIA (NVDA).
You remain positive on its long-term outlook, but do not expect the stock to rise sharply in the near term. You also have a target price at which you would be comfortable selling.
You could consider selling 1 Call option at that strike price.
A standard US equity option contract typically represents 100 shares, so your shares can cover the potential delivery obligation.
If the stock stays below the strike price at expiry and the option is not exercised, you generally keep the shares and the premium.
If the option is exercised, you may need to sell your 100 shares at the strike price.
2. How to Choose the Strike Price
Closer to the current price:
Usually a higher premium, but a higher chance of assignment and less upside.
Further from the current price:
Usually a lower premium, but more room for the stock to rise.
The key question is:
“If the stock reaches this price, am I really willing to sell?”
3. What Are the Risks?
Covered Calls are not risk-free.
Downside risk remains. The premium only offsets part of a stock decline.
Upside is capped. If the stock rises sharply, you may miss further gains above the strike price.
There is also early exercise risk, while higher implied volatility (IV) may increase the premium but also signals greater expected price swings.
A higher premium does not always mean a better trade.
4. Covered Call vs. Selling the Stock
With a limit sell order, you only sell once your target price is reached and the order is filled.
With a Covered Call, you receive premium upfront but take on the obligation to potentially sell at the strike price.
In simple terms:
“I’m willing to sell at this price, and I receive a premium for making that commitment.”
5. How Can Beginners Start?
Step 1: Understand Calls, strike prices, expiry dates and premiums.
Step 2: Practise with paper trading by holding 100 shares and selling 1 Call.
Step 3: Ask yourself:
“If the stock reaches this strike price, am I genuinely willing to sell?”
The strategy should match your market view, holding goals and risk tolerance.
6. Build Your Options Knowledge
Covered Calls are only one part of options trading.
From Calls and Puts to Delta, Theta, IV, Cash-Secured Puts, Protective Puts and Collars, the same questions keep coming up:
What risk are you willing to take?
How much upside do you want to keep?
What are you willing to give up for option premium?
Understanding these trade-offs matters more than looking for a “perfect strategy”.
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🎯 Tiger Community｜What Would You Do?
Suppose you own a stock trading at USD100 and still believe in it for the long term.
Would you sell it at USD110 and receive an option premium upfront, or keep holding for the full upside?
Share your thoughts in the comments.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
A Covered Call is useful when you are long-term bullish but only moderately bullish in the short term.
You collect premium while holding the stock.
If the stock stays below the strike, you generally keep the shares and premium.
If the stock suddenly jumps far above the strike, your upside is limited.
If the stock falls heavily, the premium only provides a small cushion.
The most important question is: “Would I really be happy selling my 100 shares at the strike price?”
For example, with NVDA at $100, selling a $110 Call makes sense only if $110 is genuinely your acceptable selling price.
Bottom line:
Covered Calls are not “free income.” You are selling some future upside in exchange for premium today. For beginners, choosing the right strike and understanding assignment risk are more important than chasing a high premium.