Income Strategies: Covered Calls & Cash-Secured Puts
Selling options against stock or cash you already hold — collecting the premium as income, in exchange for giving something up.
Where the earlier lessons in this track cover buying options, this one covers selling them — specifically the two most common income-oriented strategies, each requiring the seller to already hold either the underlying stock or the cash to buy it. Both collect the option's premium upfront as income, and both involve a real, specific tradeoff for that income.
| Covered Call | Cash-Secured Put | |
|---|---|---|
| Requires holding | 100 shares of the underlying stock | Enough cash to buy 100 shares at the strike price |
| You sell | A call option against your shares | A put option, backed by your cash |
| You collect | The call's premium, as income | The put's premium, as income |
| The tradeoff | Your upside is capped above the strike price | You may be obligated to buy the stock at the strike, even if it's fallen further |
Selling a call against stock already owned means agreeing, in exchange for the premium, to sell those shares at the strike price if the buyer chooses to exercise — meaning any gain above the strike price no longer benefits the seller, who's already contractually agreed to sell at that level.
An investor owns 100 shares bought at $95 and sells a covered call at a $105 strike for $200 in premium. If the stock rises to $115, the shares get called away at $105 — the investor keeps the $200 premium plus the gain from $95 to $105 ($1,000), but misses out entirely on the additional $1,000 of gain between $105 and $115 that a plain shareholder without the covered call would have kept. The premium was real income, collected regardless of outcome — but it came with a real, specific cap on further upside.
- Both strategies are commonly described as "income," but the income is compensation for a specific, real obligation taken on — not a free enhancement to an existing position.
- A covered call caps upside above the strike; a cash-secured put obligates buying the stock at the strike even if the price has fallen well below it by expiration.
- Both require real capital committed (100 shares, or the cash to buy 100 shares) — neither is a low-capital strategy the way simply buying a single option contract is.