Covered Call

A covered call is selling a call option against 100 shares you already own, per contract, collecting a premium in exchange for capping your upside at the strike. It's "covered" because you already hold the shares to deliver if assigned — unlike a naked call, which carries open-ended risk since the seller would have to buy shares on the open market to deliver them. If the stock stays below the strike, the call expires worthless and you keep both the shares and the premium; if it rises above the strike, your shares get sold at that price, and you keep the premium plus any gain up to the strike, but nothing beyond it. It's the second half of the wheel strategy — capped upside for premium income, with only limited downside protection if the stock drops significantly.