Category: Option Strategies

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.

Overview

Most new traders start by buying options, hoping for big gains with small investments. But the truth is, option buyers have to be right fast — about both direction and timing. That’s why many experienced traders prefer to be on the selling side, where the odds are stacked more favorably.

When we sell options, we become the “house.” We’re betting that the option will expire worthless, allowing us to keep the premium as profit. This approach often has a high probability of success — usually 60–85% — depending on the strike price and expiration. Time is on our side, because every day that passes reduces the option’s value (thanks to time decay).

Example

Let’s say a stock is trading at $105, and we sell a $100 PUT for $2. That means we collect $200 upfront (1 contract = 100 shares). If the stock stays above $100 by expiration, the PUT expires worthless, and we keep the full $200. Even if the stock drops a little, we still win — because we only get assigned if it falls below $100. That gives us a buffer and a higher chance of profit than buying a CALL or PUT.

Conclusion

By selling options, we’re getting paid to wait, and we only take action if the price moves dramatically. It’s a smart way to generate steady income with controlled risk, especially when done on quality stocks we don’t mind owning.

A covered call is a popular options strategy used by investors to generate extra income from stocks they already own. It involves selling a call option against shares of a stock you hold—typically in blocks of 100 shares. In return, you collect a premium (cash) upfront, which can reduce your cost basis or provide steady cash flow, especially in sideways or slightly bullish markets.

This strategy works best when you believe the stock will stay flat or rise only slightly. If the stock stays below the strike price by expiration, you keep the premium and your shares. If it rises above the strike price, your shares may be “called away,” meaning you’ll have to sell them at the agreed-upon price—but you still keep the premium and any gains up to the strike.

Covered calls are ideal for long-term investors looking to boost returns on stocks they don’t plan to sell right away. It’s a simple, low-risk way to enhance portfolio income while maintaining a long position, making it a great starting point for those new to options.

Example

Suppose you own 100 shares of Apple (AAPL) at $200. You sell a 1-week $210 call option and collect a $2 premium per share ($200 total). If AAPL stays below $210, you keep both your shares and the premium. If it rises above $210, your shares are sold at $210, and you still keep the $200 premium—effectively selling AAPL for $212. You profit, but you give up any gains beyond $210.