Hey Traders,
So far this week, I’ve shown you two ways I structure my trades to win even when I’m wrong.
Monday we talked about how I get paid to be wrong.
And then on WednesdayI showed you the trade that pays me to say “Sure, I’ll buy it”.
Today, I want to close out this 3-part series with something a lot of people overlook — even though it’s one of the most reliable income strategies out there.
I’m talking about the covered call.
It’s a way to get paid over and over again — just for owning stock you already have.
Let me show you how it works.
Most Investors Sit On Their Stock
Let’s say you already own 100 shares of a solid company like NVDA, AVGO, or even SPY.
What do most investors do?
They cross their fingers and hope it keeps going up.
But to me, that’s wasted opportunity.
If the stock’s just sitting there in your account… why not have it earn you income while you wait?
That’s what a covered call does.
What’s a Covered Call?
It’s simple:
You own 100 shares of stock.
You sell 1 call option against those 100 shares with a strike above the current stock price.
When you sell that call option, someone else is paying you a premium for the right to buy your shares if the stock goes above that strike.
If it doesn’t? You keep the shares and the premium.
If it does? You sell the stock at the strike price — and still keep the premium.
Either way, you win.
Let’s Talk Scenarios
Here’s how I think about it:
- Stock goes up → I sell it for a gain and keep the premium
- Stock stays flat → I keep the shares and the premium
- Stock drops a little → I still own the shares and I got paid
There’s only one case where I “lose” — and that’s if the stock tanks way below my entry. But here’s the thing…
That can happen whether you sell a call or not.
At least with covered calls, I’m getting paid while I wait for the stock to recover — instead of just sitting on it and watching it bleed.
And every time I sell a covered call without getting called out, I am lowering my cost basis on the stock.
Do that 3 or 4 times and when you finally get called out, you’re making some serious bank!
Why People Are Scared of Covered Calls
Just as I talked about with naked puts, one of the most common questions I get is “What if the stock suddenly surges and I get called out?“
Couple of things:
- Who cares! No one ever went broke taking profit. – And that’s exactly what is happening here. Unless you sell a strike below your cost basis (not something I usually advise), you are only ever selling the stock at a profit.
- That’s the whole point! – The goal is to get called out. In fact, that’s the only way to make the big bucks. Plus, you’d be shocked at how often you sell a call and think “that’s it… I’m getting called out” and then the stock takes a dip, the option expires worthless and you get to sell another call.
- “But I sold a $100 strike price call and now it’s trading at $110!” – Sure, you missed out on $10 per share of possible profit, but guess what. Over the long term this is a rare occurrence. More often than not, all the premium you bring in will more than offset that rare time you miss out on a big potential surge.
Let’s look at NVDA real quick. Let’s say you bought it July of last year. Here’s a chart of NVDA over the past year.
NVDA today is the most valuable company in the world. But did it go straight up over the past year?
Heck no… look at all that up and down action.
If you bought a year ago at about $125 and never sold a covered call, you’d have seen your portoflio drop as much as 30% not once, but twice!
And right now even with the stock at all time highs, you’d be sitting on a 30% profit.
Now imagine instead of sitting there staring at the screen and praying for NVDA to go up, you had just sold covered calls every 4-6 weeks?
Imagine how must you would have lowered your cost basis.
A Word on Strike Selection
You don’t want to get greedy here.
Pick a strike that’s 7-10% above the current price — something you’d be happy to sell at.
That way, if it gets called away, you still walk away with profit and premium. Then you just rinse and repeat.
And if it doesn’t? You do it again next week or next month.
This is how I generate income week after week, even when the stock market is going nowhere.
Final Thoughts
The three methods I’ve shown you this week are the backbone of how I generate income.
See, rather than hoping and praying for the market to move in my direction, I’ve structured my trades — whether it’s a credit spread, a naked put, or a covered call — to stack the odds in my favor.
If the stock soars? I win.
If it chops sideways? I win.
If it drops a bit? I still win.
No wishful thinking. Just smart trading.
Hope this mini-series helped you rethink how you approach your trades.
Trade well,
Jack Carter
P.S. This stock’s insane volatility is at the heart of why I use it to generate income — as long as it moves. See how it works here.
