8. Covered Call Strategy

Long Stock + short a call
Bullish to neutral strategy
The quality should match between the stock and the short call. So if you have 100 shares of stock, tou you sell only 1 call contract
This trade is completely exposed on the downside other than the premium that you recieved
Giving up all profits beyond the strike price in exchange of the premium, your profits are capped at the strike price, they will not grow with the underlying price
It acts as a sort of dividend if stock price does not go beyond the strike price
In most platforms a covered call is a single transaction
Synthetically equivalent of a short put

Profit Table
| Stock Price | P/L at expiration |
| ---------- | --------------- |
| Stock price below BE | Loss of [Stock Price at expiration] - [Initial Stock Price] + [Premium] |
| Stock price at BE | No profit/Loss |
| Stock price between BD and strike price | Profit of [Stock Price at expiration] - [Initial Stock Price] + [Premium] |
| Stock Price at or above strike price | Profit of [Strike Price] - [Initial Stock Price] + [Premium] (Capped)|

Example

Stock at $70
Buy stock at $70 and sell a $80 call for $4
A single transaction: $80 covered call for $66
Breakeven at $66
Max profit of [Strike Price] - [Initial Stock Price] + [Premium] = 80 - 70 + 4 $14
Max loss is $66
Giving up all the profits beyond $80 ($14 per contract)