How Does Selling a Covered Call Limit the Seller’s Risk Profile?
Selling a covered call means the seller owns the equivalent amount of the underlying asset for which they are selling the call option. This limits the seller's risk because if the option is exercised, they can deliver the stock they already own.
Their maximum loss is limited to the difference between the price they paid for the stock and the strike price, minus the premium received. Crucially, the risk of unlimited loss from a soaring price is eliminated.
