Covered Calls: The Wheel's Second Half

In short

How a covered call works as the wheel's second phase, picking up from an assigned position, with a worked example of total profit if shares are called away.

Once assignment gives you shares, the wheel's second phase begins: selling a covered call against them. Here's how that half of the cycle works, picking up right where assignment left off.

The mirror-image trade

A covered call means selling someone else the right to buy your stock at a strike you choose, in exchange for a premium — the mirror image of the cash-secured put you started with.

Picking up where assignment left off

You were assigned 100 shares of XYZ at a $50 strike, having collected $1.75 in put premium — real cost basis $48.25. Now you sell a covered call.


Shares held	100, cost basis $48.25
Covered call sold	$52 strike, 30 days out
Premium collected	$1.30/share ($130 total)
If XYZ stays below $52	Call expires worthless; keep shares and the $130
If XYZ rises above $52	Shares called away at $52; total profit locked in

If shares get called away at $52, total profit combines everything: $52 - $48.25 = $3.75/share on the stock itself ($375), plus the $130 from this call's premium, for $505 total — built from two premiums (the $1.75/share put and this $1.30/share call) plus the $2/share gain between the put's $50 strike and the call's $52 strike.

Why "covered" matters

The call is "covered" because you already own the 100 shares needed to deliver if assigned — unlike selling a call on stock you don't own, which carries open-ended risk if the stock rallies sharply. Owning the shares first is what makes this structurally different from a naked call.

Trade with discipline

Selling a covered call caps your upside at the strike — if XYZ rallies to $70, you still only get $52/share, missing the extra $18. And if the stock falls significantly, the $130 premium only offsets a small part of that decline. Choosing where to set this strike — and knowing your max risk and expiration going in — gets its own closer look later in this module.

Key takeaway: A covered call is the wheel's second trade: sell the right to your shares at a strike above cost basis, and collect premium either way.

Next: how a covered call compares to — and fits inside — the broader wheel strategy.

This lesson is educational content explaining standard options mechanics, not personalized investment or trading advice.