The Covered Call
Welcome to Unit 2 — the strategies that ADD discipline instead of decisions. First up, the most sensible options trade in existence: the covered call. You own 100 shares. You agree, in advance and for a fee, to sell them at a higher price you'd be happy with. That's it. It's charging rent on property you already own.
Own 100 shares. Sell one call at a strike above today's price — a price you'd genuinely be content to sell at. Collect the premium immediately. It's yours to keep no matter what happens next.
Stock stays below the strike: the call expires, you keep the shares AND the premium, and you can do it again. Stock rises past the strike: your shares sell at the strike — the price you already said yes to — plus you keep the premium. Stock falls: you're down on shares you were holding anyway, softened by the premium. There is no ending where the premium isn't yours.
Be honest about the trade-off: you've capped your upside until expiration. If the stock triples, you sold at your strike and watched the rest from the sidewalk. A covered call is you saying 'I'd take that price today' — so only write one at a strike where that sentence is actually true.
The stock surges past the strike and the seller panics, buying the call back at a loss to 'keep the shares.' That's the behavior gap eating the strategy — abandoning the plan because it worked. You set the sale price calmly, in advance. Let the plan finish.
This strategy decided your exit before emotions had a vote — that's why it opens the unit. It's education, not a directive: whether income on your particular shares is worth a ceiling on your particular upside is a question only you can answer. The mechanics, though — now you own them.
Shares you own, a sale price you chose calmly, and a fee collected up front for committing to it. The covered call is pre-commitment wearing a trade's clothing — which is exactly why it leads this unit.
Not financial advice · Educational only