Covered call (on concentrated stock)
Also: covered call, covered call strategy, writing calls, covered call on employer stock
An options strategy where the holder of long stock sells call options against it, generating premium income in exchange for capping upside above the strike price.
A covered call is the sale of a call option against stock the investor already owns. Each contract covers 100 shares. The seller receives option premium upfront. If the stock stays below the strike at expiration, the option expires worthless and the seller keeps the premium. If the stock rises above the strike, the shares are called away at the strike price, capping the upside but delivering strike plus premium. For concentrated employer stock positions, covered calls convert a portion of uncertain future appreciation into certain current cash.
Example: an engineer holds 5,000 shares of employer stock at $180, with $900,000 exposure. She sells 50 contracts (5,000 shares) of the $200 strike call expiring in 45 days, receiving $4.20 per share, $21,000 of premium. If the stock stays below $200, she keeps all shares and the $21,000. If the stock rises to $215, her shares are called at $200, producing $200 + $4.20 = $204.20 per share net, and she misses the rally above that.
Common mistake: selling calls during a blackout window or against restricted shares, which may violate insider trading rules.
Covered calls matter at concentrated post-IPO positions, at tender offer lead-up windows, and when cash flow income is a priority.