Selling CALL options is a popular strategy for generating extra income, especially if you already own the stock. Known as a covered CALL, this approach lets you collect a premium upfront by agreeing to sell your shares at a set price (the strike price) if the option is exercised.

It’s a great way to earn passive income while holding a stock, particularly in sideways or slow-moving markets. If the stock stays below the strike, the option expires worthless and you keep both the shares and the premium. If it rises above the strike, you still profit — but you sell the stock at the agreed price.

This strategy works best with stocks you’re willing to sell and can be a smart way to boost returns from long-term holdings.

Overview

Learn more about PUT options in What is a PUT option? and How to sell a PUT option.

Selling a PUT option is a great way to earn income while potentially buying a stock you like at a discount. When you sell a PUT, you’re agreeing to buy 100 shares of a stock at a specific price (called the strike price) by a certain date — but only if the stock falls below that price. In return, you get paid a premium up front.

For example, if you sell a $100 PUT on a stock and collect a $3 premium, you’re agreeing to buy it at $100 — but your real cost would be $97 ($100 – $3). If the stock stays above $100, the option expires worthless and you keep the full $3. If it drops below $100, you’ll be assigned and buy the stock — but you’re still better off than if you had bought it at full price.

This strategy works best with stocks you actually want to own, and it’s a smart way to build positions slowly while earning passive income along the way. Just make sure you have enough cash to buy the stock if assigned — that’s why it’s called a cash-secured PUT.

Risks

Assignment risk: If the stock drops below the strike price, you must buy the shares at the agreed price, even if the stock keeps falling.

Capital requirement: You need enough cash to buy 100 shares per contract — this strategy ties up significant capital.

Stock-specific risk: If the company suffers bad news, the stock could fall far below your strike, resulting in a larger unrealized loss.

Tips

This strategy is best used on strong, fundamentally sound companies that you’d be happy to own long term. If you’re comfortable holding the stock, then being assigned isn’t a loss — it’s just a chance to buy shares at a discount and get paid while waiting.

The wheel strategy is a popular options trading technique designed to generate consistent income by cycling between selling cash-secured puts and covered calls.

The process starts with selling a cash-secured put on a stock you’re willing to own; if the option is exercised, you purchase the stock at the strike price. Once you own the shares, you then sell a covered call against them, collecting additional premium income.

If your shares are called away, you simply start the process over by selling another cash-secured put, effectively “turning the wheel” and repeating the cycle.

This strategy is favored by income-focused investors who want to potentially acquire stocks at a discount while earning regular option premiums. The wheel strategy can help reduce the cost basis of stock ownership and provide steady returns, but it does require active management and carries risks—especially if the stock’s price drops significantly after assignment. To maximize effectiveness and manage risk, it’s important to choose fundamentally strong, liquid stocks and carefully select your strike prices. With the right approach, the wheel strategy can be a powerful addition to your investing toolkit.