{"id":6129,"date":"2024-10-21T21:30:11","date_gmt":"2024-10-21T13:30:11","guid":{"rendered":"https:\/\/slashtraders.com\/?p=6129"},"modified":"2026-05-14T20:12:03","modified_gmt":"2026-05-14T12:12:03","slug":"sell-covered-call","status":"publish","type":"post","link":"https:\/\/slashtraders.com\/en\/blog\/sell-covered-call\/","title":{"rendered":"3 Reasons Why Covered Calls Are Bad And When to Avoid Them"},"content":{"rendered":"<p class=\"wp-block-paragraph\">Do you know how to save your losing stock trades using options?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Today SlashTraders will show you how to sell Covered Calls to hedge against your stocks. So you can earn a premium from selling options to reduce the cost basis of your stocks.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Even though Covered Call is the first strategy to <a href=\"https:\/\/slashtraders.com\/en\/blog\/best-way-learn-options-trading\/\" target=\"_blank\" rel=\"noreferrer noopener\">learn about options trading<\/a>, we share a few disadvantages of Covered Calls. So you know when not to trade Covered Calls.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<span class=\"0mGE27cR8bYy\"><iframe title=\"Reasons We Stopped Trading Covered Calls\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/oaBD1A-_RmI?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/span>\n<\/div><\/figure>\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"\u4ec0\u9ebc\u662fcovered-call\">What Is a Covered Call?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">A Covered Call is an <a href=\"https:\/\/slashtraders.com\/en\/blog\/beginner-options-trading-strategies\/\" target=\"_blank\" rel=\"noreferrer noopener\">options trading strategy<\/a> that hedges against a long stock position by <a href=\"https:\/\/slashtraders.com\/en\/blog\/naked-call\/\" target=\"_blank\" rel=\"noreferrer noopener\">selling OTM Call<\/a> to collect a premium if the stock price doesn't rise.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Let's review the profit analysis of buying stocks.\nA long stock position has a 50% chance of profit.\nWe profit when the price rises and lose when the price falls.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/buy-stock-1024x576.png\" alt=\"buy stock\" class=\"wp-image-6131\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/buy-stock-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/buy-stock-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/buy-stock-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/buy-stock-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/buy-stock.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">A long stock position has a 50% chance of profit. We profit when the price rises and lose when the price falls.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Selling an OTM <a href=\"https:\/\/slashtraders.com\/en\/blog\/what-are-options\/\" target=\"_blank\" rel=\"noreferrer noopener\">Call option<\/a> collects a premium.\nIf the stock price does not increase past the strike price before expiration, the option contract expires worthless and we keep all the premium.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-call-1024x576.png\" alt=\"sell call\" class=\"wp-image-6134\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-call-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-call-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-call-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-call-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-call.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">A short OTM Call option is profitable if the stock price does not increase past the strike price before expiration.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But if the stock price increases past the strike price, the maximum loss can be unlimited.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">When we combine buying 100 shares with selling a Call option, we get a Covered Call strategy. The premium received from the short Call can <a href=\"https:\/\/slashtraders.com\/en\/blog\/apple-stock-overvalued-options\/\" target=\"_blank\" rel=\"noreferrer noopener\">reduce the cost of the stocks<\/a>, and increase your chance of profit.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If the stock price increases past the Call strike before expiration, the 100 stocks will be sold at the strike price for a profit to compensate for the loss of the Call trade.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-covered-call-1024x576.png\" alt=\"sell covered call\" class=\"wp-image-6138\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-covered-call-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-covered-call-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-covered-call-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-covered-call-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-covered-call.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">A Covered Call is when we combine buying 100 shares with selling a Call option and use the premium received from the short Call to reduce the cost of the shares .<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">So a Covered Call caps the future upside of the stocks in exchange for the income from <a href=\"https:\/\/slashtraders.com\/en\/blog\/buy-to-open-vs-buy-to-close\/\" target=\"_blank\" rel=\"noreferrer noopener\">selling options<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"\u70ba\u4ec0\u9ebc\u8981\u8ce3covered-call\">Why Sell Covered Calls?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">If we want to <a href=\"https:\/\/slashtraders.com\/en\/blog\/stocks-to-buy-and-hold-forever\/\" target=\"_blank\" rel=\"noreferrer noopener\">hold onto a stock for the long-term<\/a>, but are afraid of a bearish trend, we can trade the Covered Call to <a href=\"https:\/\/slashtraders.com\/en\/blog\/bear-call-spread-delta-hedge\/\" target=\"_blank\" rel=\"noreferrer noopener\">hedge our position<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">PLTR is one of the <a href=\"https:\/\/slashtraders.com\/en\/tools\/most-active-options-today\/\" target=\"_blank\" rel=\"noreferrer noopener\">most popular stocks<\/a> on the market. Since its $9 at IPO, it quickly rose to $45, before falling back to the current $24.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/pltr-price-trend-1024x576.png\" alt=\"pltr price trend\" class=\"wp-image-6141\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/pltr-price-trend-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/pltr-price-trend-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/pltr-price-trend-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/pltr-price-trend-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/pltr-price-trend.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">Since Palantir IPOed at $9 a year ago, it quickly rose to $45, before falling back to the current $24.<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">If we purchased 100 PLTR stocks at $45, we would have a losing position now. So we can trade the Covered Call to <a href=\"https:\/\/slashtraders.com\/en\/blog\/delta-hedging-strategy\/\" target=\"_blank\" rel=\"noreferrer noopener\">hedge<\/a> and collect income while waiting for the stock to rise.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A 0.20 delta short Call at $28 that expires next month can receive $49.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-pltr-call-1024x576.png\" alt=\"sell pltr call\" class=\"wp-image-6142\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-pltr-call-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-pltr-call-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-pltr-call-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-pltr-call-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-pltr-call.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">A 0.20 delta short Call at $28 that expires next month can receive $49.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But if the stock price rises past $28 before expiration, our 100 stocks will be Called away at $28 for a loss.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If the stock price doesn't rise beyond $28, the Call option would expire worthless. Then the cost of our 100 PLTR stocks would be offset by $49 to become $4,451. Reducing the cost of each stock to $44.51.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The cost per share will continue to drop as you sell Covered Calls.<\/p>\n\n\n\n<table id=\"tablepress-15\" class=\"tablepress tablepress-id-15\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\">Time<\/th><th class=\"column-2\">Cost of trade<\/th><th class=\"column-3\">Cost per share<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">30 days<\/td><td class=\"column-2\">$4,451<\/td><td class=\"column-3\">$44.51<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">60 days<\/td><td class=\"column-2\">$4,402<\/td><td class=\"column-3\">$44.02<\/td>\n<\/tr>\n<tr class=\"row-4\">\n\t<td class=\"column-1\">90 days<\/td><td class=\"column-2\">$4,353<\/td><td class=\"column-3\">$43.53<\/td>\n<\/tr>\n<tr class=\"row-5\">\n\t<td class=\"column-1\">120 days<\/td><td class=\"column-2\">$4,304<\/td><td class=\"column-3\">$43.04<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n<p class=\"wp-block-paragraph\">You may notice that if we want to make sure we profit from the trade, we need to sell a Covered Call at $45 or higher. This way if the stock price rises past the Call strike, we break even from selling the stocks.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But we find a $45 short Call has only 0.01 delta, so the premium received is extremely low at $3.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-45-pltr-call-1024x576.png\" alt=\"sell 45 pltr call\" class=\"wp-image-6146\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-45-pltr-call-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-45-pltr-call-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-45-pltr-call-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-45-pltr-call-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/sell-45-pltr-call.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">A $45 short Call has only 0.01 delta, so the premium received is extremely low at $3.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Therefore the trick to trading Covered Call on stocks is to find a <a href=\"https:\/\/slashtraders.com\/en\/blog\/option-greeks\/\" target=\"_blank\" rel=\"noreferrer noopener\">high delta<\/a> strike price that gives us a good premium without being breached before expiration.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><a href=\"https:\/\/slashtraders.com\/en\/pricing\/?utm_source=blog&amp;utm_medium=banner\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"126\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/05\/blog-trial-banner.png\" alt=\"blog trial banner\" class=\"wp-image-9717\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/05\/blog-trial-banner.png 1280w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/05\/blog-trial-banner-300x37.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/05\/blog-trial-banner-1024x126.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/05\/blog-trial-banner-768x95.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/05\/blog-trial-banner-18x2.png 18w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"\u6211\u5011\u4e0d\u611b\u4ea4\u6613covered-call\u76843\u500b\u7406\u7531\">3 Reasons Why We Don\u2019t Sell Covered Calls<\/h2>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Even though the Covered Call is a key part of the <a href=\"https:\/\/slashtraders.com\/en\/blog\/wheel-strategy-stock-picker\/\" target=\"_blank\" rel=\"noreferrer noopener\">wheel strategy<\/a>, but there are 3 key reasons that we don't like to trade Covered Calls:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>A Covered Call requires too much capital and has very low returns.<\/li>\n\n\n\n<li>Good dividend stocks usually have poor option premiums.<\/li>\n\n\n\n<li>Covered Calls can miss out on sudden bullish trends of growth stocks.<\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"1-\u4ea4\u6613covered-call\u9700\u8981\u592a\u591a\u8cc7\u672c\u800c\u4e14\u6295\u8cc7\u5831\u916c\u7387\u4e0d\u597d\">1. A Covered Call Requires Too Much Capital and Has Very Low Returns<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">We can see the Covered Call requires the purchase of 100 stocks, which requires around $2,400 of capital investment.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">While an ATM Bull Put Spread only requires $51 of Buying Power.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/covered-call-vs-put-spread-1024x576.png\" alt=\"covered call vs put spread\" class=\"wp-image-6150\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/covered-call-vs-put-spread-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/covered-call-vs-put-spread-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/covered-call-vs-put-spread-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/covered-call-vs-put-spread-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/covered-call-vs-put-spread.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">The Covered Call requires the purchase of 100 stocks, so the required capital is much higher than a short Bull Put Spread.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Despite both expiring in 30 days, the maximum return of a Covered Call strategy is 16% while the <a href=\"https:\/\/slashtraders.com\/en\/tools\/bull-put-spread-screener\/\" target=\"_blank\" rel=\"noreferrer noopener\">ATM Bull Put Spread<\/a> has 96% return.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Then the annualised return of Covered Calls is 192%, while the ATM Put Spread's annual return is 1,152%.<\/p>\n\n\n\n<table id=\"tablepress-14\" class=\"tablepress tablepress-id-14\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\">Strategies<\/th><th class=\"column-2\">Maximum monthly return<\/th><th class=\"column-3\">Maximum annual return<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">Covered Call<\/td><td class=\"column-2\">16%<\/td><td class=\"column-3\">192%<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">ATM Put Vertical Spread<\/td><td class=\"column-2\">96%<\/td><td class=\"column-3\">1,152%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n<p class=\"wp-block-paragraph translation-block\">So there is an opportunity cost of using so much capital to trade Covered Calls for a low return. We recommend trading <a href=\"https:\/\/slashtraders.com\/en\/blog\/poor-mans-covered-call-stock-pick\/\" target=\"_blank\" rel=\"noreferrer noopener\">Poor Man's Covered Calls<\/a> instead.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"2-\u597d\u7684\u914d\u606f\u80a1\u7968\u901a\u5e38\u4ea4\u6613\u671f\u6b0a\u6536\u5165\u4e0d\u9ad8\">2. Good Dividend Stocks Usually Have Poor Option Premiums<\/h3>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Dividend stocks are poor candidates for trading Covered Calls, since dividend stocks or ETFs have lower <a href=\"https:\/\/slashtraders.com\/en\/blog\/market-volatility-hv-iv\/\" target=\"_blank\" rel=\"noreferrer noopener\">IV<\/a>, and therefore receive a lower premium from the Call options.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">For example, trading a Covered Call for SPY at 0.20 delta would have a very low strike price, leading to a maximum return of 2.9%.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/spy-covered-call-1024x576.png\" alt=\"spy covered call\" class=\"wp-image-6154\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/spy-covered-call-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/spy-covered-call-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/spy-covered-call-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/spy-covered-call-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/spy-covered-call.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">Trading a Covered Call for SPY at 0.20 delta would lead to a maximum return of only 2.9%.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">A better strategy is to buy and hold <a href=\"https:\/\/slashtraders.com\/en\/tools\/dividend-stock-screener\/\" target=\"_blank\" rel=\"noreferrer noopener\">high dividend yield stocks<\/a> to generate consistent dividend income for <a href=\"https:\/\/slashtraders.com\/en\/blog\/best-fire-blogs\/\" target=\"_blank\" rel=\"noreferrer noopener\">early retirement<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"3-\u5728\u6210\u9577\u80a1\u8ce3covered-call\u6703\u932f\u5931\u80a1\u50f9\u5411\u4e0a\u66b4\u885d\u7684\u7372\u5229\">3. Covered Calls Can Miss Out on Sudden Bullish Trends of Growth Stocks<\/h3>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">If we try selling Covered Calls on a <a href=\"https:\/\/slashtraders.com\/en\/tools\/best-value-stocks\/\" target=\"_blank\" rel=\"noreferrer noopener\">high IV growth stock<\/a> like TSLA, a 0.20 delta Covered Call has a maximum return of 11%.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-covered-call-1024x576.png\" alt=\"tsla covered call\" class=\"wp-image-6157\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-covered-call-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-covered-call-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-covered-call-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-covered-call-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-covered-call.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">A 0.20 delta TSLA Covered Call has a maximum return of 11%.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The strike price also gives us around $86 of upside potential.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Which looks good at first, until we realise that TSLA would experience bullish trends that gained $100 in 30 days. Such price bursts actually happened three times in the last year. If we traded Covered Calls for TSLA in the past year, we would have missed the <a href=\"https:\/\/slashtraders.com\/en\/blog\/tesla-stock-bullish-options\/\" target=\"_blank\" rel=\"noreferrer noopener\">big gains<\/a>.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-price-trend-1-1024x576.png\" alt=\"tsla price trend\" class=\"wp-image-6169\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-price-trend-1-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-price-trend-1-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-price-trend-1-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-price-trend-1-18x10.png 18w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/tsla-price-trend-1.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">TSLA stock experienced big surges in prices by at least $100 three times in the last year. Trading Covered Calls would have missed out on the big gains.<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">A better way to trade growth stocks is to anticipate <a href=\"https:\/\/slashtraders.com\/en\/blog\/bottom-out-stock-bull-put-spread\/\" target=\"_blank\" rel=\"noreferrer noopener\">bottom out signals<\/a> and trade Bull Put Spreads.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">When to Avoid Covered Calls?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Considering the drawbacks mentioned above, we can conclude that the following situations are not suitable for trading Covered Calls:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">When the Cost of Owning 100 Shares Is Too High<\/h3>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">SPY is one of the most popular long-term investment options. However, over the past few years, its stock price has fluctuated between USD 200 and USD 600. An investor needs to invest around USD 20,000 to USD 60,000 to hold 100 shares as part of a Covered Call.<\/p>\n\n\n<p><!-- TradingView Widget BEGIN --><\/p>\n<div class=\"tradingview-widget-container\">\n<div class=\"tradingview-widget-container__widget\"><\/div>\n<div class=\"tradingview-widget-copyright\"><a href=\"https:\/\/www.tradingview.com\/\" rel=\"noopener nofollow\" target=\"_blank\"><span class=\"blue-text\">Track all markets on TradingView<\/span><\/a><\/div>\n<p>  <script type=\"text\/javascript\" src=\"https:\/\/s3.tradingview.com\/external-embedding\/embed-widget-advanced-chart.js\" async>\n  {\n  \"width\": \"100%\",\n  \"height\": \"400\",\n  \"symbol\": \"AMEX:SPY\",\n  \"timezone\": \"Etc\/UTC\",\n  \"theme\": \"light\",\n  \"style\": \"1\",\n  \"locale\": \"en\",\n  \"hide_top_toolbar\": true,\n  \"range\": \"60M\",\n  \"allow_symbol_change\": false,\n  \"save_image\": false,\n  \"calendar\": false,\n  \"hide_volume\": true,\n  \"support_host\": \"https:\/\/www.tradingview.com\"\n}\n  <\/script>\n<\/div>\n<p><!-- TradingView Widget END --><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For smaller investors, this makes it challenging to use Covered Calls to diversify their investments, which in turn limits their ability to spread out risk.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">High-Volatility Stocks<\/h3>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Most tech stocks tend to either surge dramatically, as a market leader, or plummet due to obsolescence, which is why they often <a href=\"https:\/\/slashtraders.com\/en\/tools\/high-implied-volatility-stocks\/\" target=\"_blank\" rel=\"noreferrer noopener\">exhibit high implied volatility<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">While high IV can provide opportunities to earn income from selling Calls through Vega, a significant rise in stock prices can cap the maximum profit from those Call contracts.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Extremely Bullish Stocks<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Whenever popular investment topics arise, such as AR\/VR or the metaverse a few years ago, and more recently AI, there tends to be a surge of excitement in stock purchases.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">NVDA experienced nearly a tenfold increase from 2023 to 2024, and investors holding Covered Calls likely regretted the profit limitations imposed by the short Call contracts, as they could have seen a tenfold gain without them.<\/p>\n\n\n<p><!-- TradingView Widget BEGIN --><\/p>\n<div class=\"tradingview-widget-container\">\n<div class=\"tradingview-widget-container__widget\"><\/div>\n<div class=\"tradingview-widget-copyright\"><a href=\"https:\/\/www.tradingview.com\/\" rel=\"noopener nofollow\" target=\"_blank\"><span class=\"blue-text\">Track all markets on TradingView<\/span><\/a><\/div>\n<p>  <script type=\"text\/javascript\" src=\"https:\/\/s3.tradingview.com\/external-embedding\/embed-widget-advanced-chart.js\" async>\n  {\n  \"width\": \"100%\",\n  \"height\": \"400\",\n  \"symbol\": \"NASDAQ:NVDA\",\n  \"timezone\": \"Etc\/UTC\",\n  \"theme\": \"light\",\n  \"style\": \"1\",\n  \"locale\": \"en\",\n  \"hide_top_toolbar\": true,\n  \"range\": \"60M\",\n  \"allow_symbol_change\": false,\n  \"save_image\": false,\n  \"calendar\": false,\n  \"hide_volume\": true,\n  \"support_host\": \"https:\/\/www.tradingview.com\"\n}\n  <\/script>\n<\/div>\n<p><!-- TradingView Widget END --><\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Therefore, when anticipating a significant short-term rise in a stock, using Covered Calls may not be the best strategy for securing profits. <a href=\"https:\/\/slashtraders.com\/en\/blog\/stocks-to-buy-and-hold-forever\/\" target=\"_blank\" rel=\"noreferrer noopener\">Simply holding the stock<\/a> and waiting for substantial gains is often a wiser choice.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">When to Use Covered Calls?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Covered Call is suitable for those looking to hold value stocks for the long term, particularly <a href=\"https:\/\/slashtraders.com\/en\/blog\/best-blue-chip-stocks-dividends\/\" target=\"_blank\" rel=\"noreferrer noopener\">high-quality stocks with lower prices that offer stable dividends<\/a> over time.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">We utilise a <a href=\"https:\/\/slashtraders.com\/en\/tools\/dividend-stock-screener\/\" target=\"_blank\" rel=\"noreferrer noopener\">Dividend Scanner<\/a> to filter stocks that have consistently increased their dividends for at least 25 years. This helps us identify dividend aristocrats that are currently suitable for long-term investment, and we then sort by yield to uncover the best income opportunities.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"196\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/03\/dividend-aristocrat-settings.png\" alt=\"Greater than 25 years\" class=\"wp-image-12064\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/03\/dividend-aristocrat-settings.png 1280w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/03\/dividend-aristocrat-settings-300x51.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/03\/dividend-aristocrat-settings-1024x174.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/03\/dividend-aristocrat-settings-768x130.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/03\/dividend-aristocrat-settings-18x3.png 18w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">Dividend aristocrats have increased dividends for more than 25 years in a row.<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">When evaluating the listed dividend aristocrats, there are several key metrics to consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"translation-block\">Fair Value indicates a <a href=\"https:\/\/slashtraders.com\/en\/blog\/fundamental-analysis-vs-technical-analysis\/\" target=\"_blank\" rel=\"noreferrer noopener\">stock's true worth<\/a>, so we should focus on those with a Fair Value higher than the current stock price. This presents a positive Upside opportunity that allows us to hold shares long-term for growth.<\/li>\n\n\n\n<li>Dividend Yield represents the expected annual return from dividends for holding the stock. The higher the yield, the more dividends we can anticipate receiving.<\/li>\n\n\n\n<li>Years of Dividend Growth reflects the number of consecutive years a company has increased its dividends. The greater the number, the greater the likelihood that the stock will continue to raise dividends, thereby enhancing passive income.<\/li>\n<\/ul>\n\n\n\n<table id=\"tablepress-63\" class=\"tablepress tablepress-id-63\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\">Stocks<\/th><th class=\"column-2\">Last<\/th><th class=\"column-3\">Fair value<\/th><th class=\"column-4\">Upside<\/th><th class=\"column-5\">Dividend yield<\/th><th class=\"column-6\">Years of dividend growth<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">MO<\/td><td class=\"column-2\">$49.86<\/td><td class=\"column-3\">$53.47<\/td><td class=\"column-4\">7.24%<\/td><td class=\"column-5\">8.21%<\/td><td class=\"column-6\">54<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">EPD<\/td><td class=\"column-2\">$29.49<\/td><td class=\"column-3\">$30.80<\/td><td class=\"column-4\">4.44%<\/td><td class=\"column-5\">7.14%<\/td><td class=\"column-6\">27<\/td>\n<\/tr>\n<tr class=\"row-4\">\n\t<td class=\"column-1\">UGI<\/td><td class=\"column-2\">$24.76<\/td><td class=\"column-3\">$24.18<\/td><td class=\"column-4\">-2.34%<\/td><td class=\"column-5\">6.27%<\/td><td class=\"column-6\">37<\/td>\n<\/tr>\n<tr class=\"row-5\">\n\t<td class=\"column-1\">o<\/td><td class=\"column-2\">$62.11<\/td><td class=\"column-3\">$67.36<\/td><td class=\"column-4\">8.45%<\/td><td class=\"column-5\">5.14%<\/td><td class=\"column-6\">31<\/td>\n<\/tr>\n<tr class=\"row-6\">\n\t<td class=\"column-1\">NNN<\/td><td class=\"column-2\">$47.95<\/td><td class=\"column-3\">$47.33<\/td><td class=\"column-4\">-1.29%<\/td><td class=\"column-5\">4.91%<\/td><td class=\"column-6\">35<\/td>\n<\/tr>\n<tr class=\"row-7\">\n\t<td class=\"column-1\">TROW<\/td><td class=\"column-2\">$109.68<\/td><td class=\"column-3\">$111.10<\/td><td class=\"column-4\">1.29%<\/td><td class=\"column-5\">4.59%<\/td><td class=\"column-6\">38<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Considering all the indicators, the most suitable dividend aristocrat for long-term holding is MO, which not only has growth potential but also offers a stable and high yield.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To trade the Covered Call on MO, we need to:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Buy 100 stocks.<\/li>\n\n\n\n<li>Sell a Call near the Fair Value that expires next month.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/mo-covered-call.png\" alt=\"mo covered call\" class=\"wp-image-12067\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/mo-covered-call.png 1280w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/mo-covered-call-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/mo-covered-call-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/mo-covered-call-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/10\/mo-covered-call-18x10.png 18w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">MO Covered Call uses premiums to increase dividend gains.<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">This Covered Call trade uses a purchasing power of USD 4,968, primarily covering the cost of buying stocks.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If the stock price does not exceed Fair Value before the contract expires next month, a profit of USD 28 can be realised, translating to a monthly income of 0.5% from selling Calls, along with an annual dividend income of 8.21%.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If the stock price rises above Fair Value before next month, the maximum profit will be USD 282, which equates to a 5.7% gain.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When investing in Covered Calls, it is evident that the dividends earned from holding dividend aristocrats over the long term may surpass the maximum profit from the assigned Covered Call. Therefore, it is crucial to select a strike price that is unlikely to be exceeded, allowing for long-term stock ownership and the accumulation of passive income.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">So we don't usually trade Covered Calls in <a href=\"https:\/\/slashtraders.com\/en\/performance\/positions\/\" target=\"_blank\" rel=\"noreferrer noopener\">SlashTraders' live trading account<\/a>.<\/p>\n\n\n\n<p class=\"has-ast-global-color-4-background-color has-background wp-block-paragraph\"><a href=\"https:\/\/slashtraders.com\/en\/blog\/slashtraders-vs-sp500\/\" target=\"_blank\" rel=\"noreferrer noopener\">SlashTraders vs S&amp;P 500: 450% Outperformance, Verified Trades and How to Copy Every Alert<\/a><\/p>","protected":false},"excerpt":{"rendered":"<p>We show you how to sell Covered Calls to hedge against your stocks and reduce the cost basis of your stocks. We also share with you a few drawbacks of Covered Calls.<\/p>","protected":false},"author":1,"featured_media":6130,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"plain-container","ast-site-content-layout":"normal-width-container","site-content-style":"unboxed","site-sidebar-style":"unboxed","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":"","_wp_rev_ctl_limit":"5"},"categories":[3],"tags":[56,12,64,14,37,21,18,11],"class_list":["post-6129","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-cn","tag-en","tag-es","tag-options","tag-pltr","tag-spy","tag-tsla","tag-tw"],"_links":{"self":[{"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/posts\/6129","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/comments?post=6129"}],"version-history":[{"count":5,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/posts\/6129\/revisions"}],"predecessor-version":[{"id":14567,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/posts\/6129\/revisions\/14567"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/media\/6130"}],"wp:attachment":[{"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/media?parent=6129"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/categories?post=6129"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/tags?post=6129"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}