Covered calls are a popular strategy for option trading that allows investors to generate passive income covered calls from shares that they already are. This strategy is used by traders in search of stable returns with a much-limited risk. In this article, we will explain how covered conversations work, to assess the benefits and important things before using.

A convert earned income to passive income involves selling (writing) a conversation option on a stock that you already have. By doing this, you collect a premium (income) from the option buyer. For their part, you agree to sell your shares at a predetermined price (strike price) if the option is used.

How Does a Covered Call Work?

1. Own a Stock – You must own at least 100 shares of a stock.
2. Sell a Call Option – You sell a call option with a strike price above the current stock price.
3. Collect Premium – The buyer pays you a premium for the option contract.
4. Wait for Expiry – If the stock remains below the strike price, you keep the premium and your shares.
5. Stock Assignment – If the stock price rises above the strike price, you must sell your shares at that price.

Example of a Covered Call

• You own 100 shares of XYZ stock, currently trading at ₹500 per share.
• You sell a call option with a ₹520 strike price and receive a ₹10 per share premium.
• If the stock stays below ₹520, you keep the ₹1,000 premium (₹10 x 100 shares).
• If the stock rises above ₹520, you sell your shares at ₹520, keeping both the premium and capital gains.

Benefits of Covered Calls

1.      Generate Extra Income – The premium received adds to your profits.

2.      Lower Downside Risk – Premiums act as a cushion if the stock price drops.

3.      Simple Strategy – Easy to understand and execute for long-term investors.

4.      Works in Neutral Markets – Ideal when expecting minimal price movements.

Best Stocks for Covered Calls

• Stocks with low to moderate volatility
• Dividend-paying stocks for extra income
• Blue-chip companies with stable price movements

Conclusion

Covered conversations are the great way to earn passive income in Covered Calls while keeping the stock In stock market. They provide a stable cash flow & reduce the risk in the market with the neutral or slightly faster. However, it is important to choose the right stock & strike prices to maximize profits. If used with care, the covered conversations can be the valuable addition to any investor strategy. 

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