What Is the Maximum Profit and Loss Potential of a Covered Call?
The maximum profit of a covered call is limited and occurs if the underlying asset's price rises to or above the call option's strike price. It is calculated as the initial profit on the stock (Strike Price – Purchase Price) plus the premium received.
The maximum loss is substantial but not unlimited, occurring if the asset price falls to zero, and is calculated as the purchase price of the asset minus the premium received.
Glossar
Maximum Loss
Value ⎊ Maximum Loss represents the absolute worst-case financial outcome, expressed as a specific monetary value, that a derivatives position can incur over its entire life cycle.
Covered Call
Strategy ⎊ This involves selling a call option on an asset that the investor already owns, thereby generating immediate income against potential appreciation.
Covered Call Writer
Role ⎊ The Covered Call Writer assumes the role of an option seller who holds a long position in the underlying crypto asset equal to the quantity specified in the call option contract they sell.
Maximum Profit and Loss
Definition ⎊ Maximum profit and loss define the upper and lower bounds of potential returns for an options trading strategy.
Maximum Profit
Definition ⎊ Maximum profit represents the theoretical upper limit on the financial gain achievable from a specific trading position or options strategy.