Covered Call vs Put Selling

Covered Call

A covered call involves owning a stock and selling a call option on those shares. The seller receives a premium in exchange for taking on the obligation to sell the stock at the strike price if the option is exercised.

If the stock remains below the strike price through expiration, the call may expire worthless and the premium is retained.

If the stock rises above the strike price, further upside is limited because the shares may be called away at the predetermined strike. Covered calls are generally used when an investor seeks to define potential outcomes while holding a stock and is comfortable with the possibility of having to deliver shares at a set price.

Cash-Secured Put

Selling a cash-secured put involves setting aside sufficient cash to purchase the stock if assigned, then selling a put option and receiving a premium for agreeing to buy the stock at the strike price. If the stock stays above the strike price, the put may expire worthless and the premium is retained. If the stock declines below the strike price, the seller may be assigned and purchase the stock at the strike price, with the premium reducing the net cost basis.

This approach is often used to express a view on the stock’s price path while establishing a defined cost basis if assignment occurs. Premium retention or assignment outcomes depend on market movement and are not guaranteed.

Put Spread

A put spread combines a short put with a long put at a lower strike. Selling the higher-strike put and buying the lower-strike put creates a net credit at entry.

Maximum loss is limited to the difference between the two strike prices minus the net premium received. If the stock remains above the higher strike, both options may expire worthless and the entire net premium is retained. If the stock declines, the long put helps define and cap potential downside risk. The trade-off is that the long put reduces the premium collected but limits the maximum potential loss, creating a defined-risk structure.

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Educational discussions of strategies—including covered calls, put selling, spreads, protective options, volatility strategies, or execution methods—are intended to illustrate general concepts only. These descriptions are not recommendations, and actual performance will vary depending on market conditions, liquidity, transaction costs, and individual circumstances. Analytical measures and sensitivities  such as delta, gamma, theta, and vega estimate sensitivity to inputs but do not predict future results.

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