{"id":45224,"date":"2023-03-27T09:24:37","date_gmt":"2023-03-27T07:24:37","guid":{"rendered":"https:\/\/staging.captrader.com\/glossar\/covered-call\/"},"modified":"2024-03-25T17:14:19","modified_gmt":"2024-03-25T16:14:19","slug":"covered-call","status":"publish","type":"glossar","link":"https:\/\/www.captrader.com\/en\/glossar\/covered-call\/","title":{"rendered":"Covered Call"},"content":{"rendered":"
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The covered call is a very popular strategy among \"options-savvy\" private investors, which makes it possible to combine long-term equity investments with premium income from the sale of options. In this way, additional income can be generated without increasing risk. In this article you will learn what exactly a covered call is and how it can be traded.<\/p>\n\n\n\n

Definition Covered Call<\/h2>\n\n\n\n

The term covered call refers to the sale of an option on an underlying that is held in one's own custody account. The strategy is mostly used in connection with shares or ETFs bought with a long-term investment horizon, but can also be used on a short- to medium-term basis when trading futures.<\/p>\n\n\n\n

P&L diagram<\/h2>\n\n\n\n

The P&L diagram of a share is linear: the further the share rises, the higher the profit. By selling a call option on the share, the profit is \"cut off\" from a certain price level, since the profit from the share position is compensated by the loss from the short call.<\/p>\n\n\n\n

The P&L diagram of a short call shows that a profit is made when the option expires if the underlying is quoted below the strike price. The resulting loss in case of a price increase is fully covered by the profit of the long position of the share.<\/p>\n\n\n\n

\"CapTrader_covered
P&L diagram of a short call. If the option runs into the money, a loss is incurred, which is, however, covered by the long position in the underlying.<\/figcaption><\/figure>\n\n\n\n

What should I pay attention to when trading a covered call?<\/h2>\n\n\n\n

By selling the option, a premium income can be generated with the covered call. However, the risk of falling prices of the underlying (the share) can only be reduced insignificantly. Since this risk also exists with pure stock investments, it seems to make sense to write covered calls on stocks or ETFs that are held for the long term or are bought with a clear entry and exit strategy.<\/p>\n\n\n\n

Risk<\/h3>\n\n\n\n

Since the option premium collected is limited, the risk of a covered call lies in the (bearish) price development of the share (or the underlying). Therefore, a clear strategy should be followed in the context of risk management (e.g. buy and hold or hedging of the position by stop loss or options).<\/p>\n\n\n\n

Maximum profit<\/h3>\n\n\n\n

As with an uncovered short call, the maximum profit of a covered call corresponds to the amount of the option premium collected. If the option is quoted in the money on the expiration date, the long position in the underlying is automatically closed by the exchange (or the clearing house), whereby the profit is realized. The selling price corresponds to the strike price of the sold call option.<\/p>\n\n\n\n

Should the underlying rise far above the strike price, you will not be able to profit from it, as your profit potential of the long position is limited. You can therefore think of the covered call as a kind of take profit order, which brings with it the advantage of additional income.<\/p>\n\n\n\n

Multiplier<\/h3>\n\n\n\n

To ensure that the risk is actually fully covered in the event of an increase in the underlying beyond the strike price of the option, attention must be paid to the number of units and the multiplier. For stock options, one option refers to 100 shares, for futures the multiplier is different. If a call option is written on e.g. only 50 shares, there is an unlimited risk in case of a bullish price movement (see short call).<\/p>\n\n\n\n

Runtime<\/h3>\n\n\n\n

The term of the options can be flexibly adjusted according to personal market assessment. The longer the remaining term, the higher the option premium. However, the time value decay is also lower with a long remaining term. (This accelerates exponentially until the expiration date).<\/p>\n\n\n\n

Covered calls can also be traded continuously. I.e. instead of choosing an option with a long remaining term, an option with a shorter remaining term can also be traded and a new option can be sold immediately after expiration.<\/p>\n\n\n\n

With shorter remaining terms, you can also react more flexibly and, for example, roll an option to a later expiration date and\/or a different strike price.<\/p>","protected":false},"author":20,"featured_media":0,"template":"","class_list":["post-45224","glossar","type-glossar","status-publish","hentry"],"acf":{"blog_summary":"","blog_faq_schalter":"nein","faq_uberschrift":"","blog_faq_loop":null},"_links":{"self":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/glossar\/45224","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/glossar"}],"about":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/types\/glossar"}],"author":[{"embeddable":true,"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/users\/20"}],"wp:attachment":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/media?parent=45224"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}