Wheel 101 · Part 3
Step 2: How to sell a covered call
Now you own 100 shares. Time to get paid again.
A call is the opposite promise. When you sell one, you're saying: "I'll sell my 100 shares at $Y if the price rises above $Y before a certain date."
It's "covered" because you already own the shares you'd be selling.
Continuing the example
- You own 100 XYZ at $50.
- You sell a call at $53 that expires in 30 days.
- You get paid $0.80 per share = $80.
Two things can happen
XYZ stays below $53
You keep the $80 and your shares. Sell another call.
XYZ rises above $53
Your shares get sold at $53. You keep the $80 plus a $3/share gain ($300).
Then you're back to cash and back to Step 1. The wheel turns.
Total in this example: $100 + $80 + $300 = $480 on one full trip around the wheel.