What Is a Covered Call Strategy and How Does Moneyness Affect the Choice of the Option to Sell?

A covered call is a strategy where an investor holds a long position in an asset and sells a call option on that same asset to generate income from the option's premium. The choice of moneyness for the sold call depends on the investor's goal.

Selling an OTM call generates less income but allows for more potential capital appreciation of the underlying asset before it's called away. Selling an ATM or ITM call generates a higher premium but caps the upside potential sooner and increases the likelihood of the asset being sold.