Derivatives · Core
Covered Call
A covered call is long the stock and short a call — you sell upside for premium and keep the downside.
Definition
Long shares + short call (usually OTM). Payoff is stock-like until the strike, then flat, plus premium. It is a short-vol, short-upside overlay. ‘Income’ is the premium; the cost is the missing rally.
Why it matters
Overwrite ETFs and stock-plus-call mandates are huge. They look clever in quiet bulls and cheap in melt-ups.
Case
A covered-call index sleeve in 2021: premium was small, the missed upside was not. In 2022 the premium helped a bit and the stock still fell.
How to read it
You are short a call. That is a view on upside and on vol, not a free dividend. Compare to just holding less stock.
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