{"id":65274,"date":"2025-09-21T03:00:27","date_gmt":"2025-09-21T08:00:27","guid":{"rendered":"https:\/\/www.tradestation.com\/insights\/?p=65274"},"modified":"2025-09-22T07:28:34","modified_gmt":"2025-09-22T12:28:34","slug":"covered-call-bullish-neutral-bearish-3","status":"publish","type":"post","link":"https:\/\/www.tradestation.com\/insights\/2025\/09\/21\/covered-call-bullish-neutral-bearish-3\/","title":{"rendered":"Bullish, Neutral, Even Bearish: 3 Ways Options Traders Can Use Covered Calls"},"content":{"rendered":"\r\n<p>Covered calls are one of the most common strategies for\u00a0<a href=\"https:\/\/www.tradestation.com\/trading-products\/options\/\">options traders<\/a>. While many investors have heard of them, they may not realize that covered calls are highly versatile. This article will cover how the method can be bullish, neutral and even bearish.<\/p>\r\n\r\n\r\n\r\n<p>First, a\u00a0covered call\u00a0consists of owning shares and selling calls against them. The calls establish a potential obligation to sell stock at a future date, so they need to be married to an existing position in the stock. In most cases, one call contract matches 100 shares.<\/p>\r\n\r\n\r\n\r\n<p>The nuance results from which strike price the investor chooses to sell. Depending on the contract, his or her position can behave very differently. Here are the three basic variations:<\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>Bullish: Sell calls further from the money<\/li>\r\n\r\n\r\n\r\n<li>Neutral: Sell calls at the money<\/li>\r\n\r\n\r\n\r\n<li>Bearish: Sell calls in the money<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p>The examples below use\u00a0<a href=\"https:\/\/www.tradestation.com\/insights\/2024\/05\/12\/memory-tricks-options-greeks-delta-gamma-theta-vega\/\" target=\"_blank\" rel=\"noreferrer noopener\">options delta<\/a>, which indicates how a call behaves relative to changes in an underlying stock. We\u2019ll show how this approach can help investors plan trades in a more systematic fashion. All three cases will use covered calls on Apple (AAPL) as examples, based on Friday&#8217;s prices.<\/p>\r\n\r\n\r\n\r\n<figure class=\"wp-block-image size-large\">\r\n<div id=\"attachment_65284\" style=\"width: 1930px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-65284\" class=\"wp-image-65284 size-full\" src=\"https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_options_20250919a.jpg\" alt=\"\" width=\"1920\" height=\"1032\" srcset=\"https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_options_20250919a.jpg 1920w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_options_20250919a-300x161.jpg 300w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_options_20250919a-1024x550.jpg 1024w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_options_20250919a-768x413.jpg 768w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_options_20250919a-1536x826.jpg 1536w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_options_20250919a-1080x581.jpg 1080w\" sizes=\"(max-width: 1920px) 100vw, 1920px\" \/><p id=\"caption-attachment-65284\" class=\"wp-caption-text\"><em>OptionStation Pro showing key Apple (AAPL) contracts cited in this article. Prices as of September 19, 2025.<\/em><\/p><\/div>\r\n<\/figure>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">Covered Call Strategy: Bullish Case<\/h3>\r\n\r\n\r\n\r\n<p>A covered call is most bullish when the trader sells calls further from the money. The reason is that options further from the money have lower delta. That means the short calls offset less of their underlying position.<\/p>\r\n\r\n\r\n\r\n<p>Say an investor holds 100 shares of AAPL worth $245. If he or she is bullish on the iPhone maker, they could sell a single November 260 call for $4.70. The position\u2019s cost basis would decrease by $4.70 per share thanks to the credit collected.<\/p>\r\n\r\n\r\n\r\n<p>The November 260 calls have 32 Deltas, which means they gain $0.32 each $1 the stock rises. Because they were sold, the delta is negative. Here\u2019s how it impacts their holding:<\/p>\r\n\r\n\r\n\r\n<figure class=\"wp-block-table\">\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>100 shares<\/td>\r\n<td>100 Deltas<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>1 short call<\/td>\r\n<td>-32 Deltas<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net position<\/td>\r\n<td>68 Deltas (68 shares)<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/figure>\r\n\r\n\r\n\r\n<p>This means that the underlying position will now behave like owning 68 shares (not 100). This keeps most of the potential upside intact, while lowering the cost basis by more than 1 percent. This approach lets traders frequently sell calls to generate income while also profiting from the stock rising. The other benefit of this method is that the short calls will lose delta as expiration approaches. That will automatically increase the position\u2019s net delta. In other words, it will become more like 100 shares.<\/p>\r\n\r\n\r\n\r\n<p>Because the position still has a lot of delta, this strategy\u2019s main risk is downside in the stock price. If AAPL falls sharply, the short calls will do little to offset 100 shares losing value.<\/p>\r\n\r\n\r\n\r\n<figure class=\"wp-block-image size-large\">\r\n<div id=\"attachment_65287\" style=\"width: 1930px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-65287\" class=\"wp-image-65287 size-full\" src=\"https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_20250919.jpg\" alt=\"\" width=\"1920\" height=\"918\" srcset=\"https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_20250919.jpg 1920w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_20250919-300x143.jpg 300w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_20250919-1024x490.jpg 1024w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_20250919-768x367.jpg 768w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_20250919-1536x734.jpg 1536w, https:\/\/cdn.tradestation.com\/uploads\/sites\/2\/AAPL_20250919-1080x516.jpg 1080w\" sizes=\"(max-width: 1920px) 100vw, 1920px\" \/><p id=\"caption-attachment-65287\" class=\"wp-caption-text\"><em>Apple (AAPL), daily chart, with 50- and 200-day moving averages. Prices as of September 19, 2025.<\/em><\/p><\/div>\r\n<\/figure>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">Covered Call Strategy: Neutral Case<\/h3>\r\n\r\n\r\n\r\n<p>A covered call is neutral when the trader sells calls near the money because those calls have more delta. They offset more of the underlying position, reducing upside. But they also have more time value, which increases the premium collected.<\/p>\r\n\r\n\r\n\r\n<p>Again, imagine someone owns 100 AAPL shares worth $245 each. If they&#8217;re neutral on the company, they could sell a single November 245 call for $11. The position\u2019s cost basis would decrease by $11 per share thanks to the credit collected.<\/p>\r\n\r\n\r\n\r\n<p>The November 245 calls have 55 deltas, which means they gain $0.55 each $1 the stock rises. Because they were sold, the delta is negative. Here\u2019s how it impacts the holding:<\/p>\r\n\r\n\r\n\r\n<figure class=\"wp-block-table\">\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>100 shares<\/td>\r\n<td>100 Deltas<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>1 short call<\/td>\r\n<td>-55 Deltas<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net position<\/td>\r\n<td>45 Deltas (45 shares)<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/figure>\r\n\r\n\r\n\r\n<p>The underlying position will now behave like owning 45 shares (not 100). This eliminates more than half the upside potential while lowering the cost basis by more than 4 percent. This approach may be suited for times when the stock is expected to move sideways. The premium collected will prevent losing money from a modest drop. But the investor also loses the ability to profit if the shares rally.<\/p>\r\n\r\n\r\n\r\n<p>This strategy can be repeated after expiration, although in some cases the investor will have to buy back the short call. It mostly capitalizes on the greater time value in options that are closer to the money. (See Extrinsic Value in screen shot.)<\/p>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">Covered Call Strategy: Bearish Case<\/h3>\r\n\r\n\r\n\r\n<p>A covered call is bearish when the trader sells calls deeper\u00a0in the money\u00a0because they have significant delta. This can offset the downside in the stock price to a certain point. The strategy can even make small profits from\u00a0time decay\u00a0in the options.<\/p>\r\n\r\n\r\n\r\n<p>Again, imagine an investor has 100 AAPL shares worth $245 each. If they are bearish on the company, he or she could sell a single November 230 call for $20.90. This effectively locks in a selling price of $250.90: 230 strike price + $20.90 credit.<\/p>\r\n<p>The November 230 calls have 76 deltas, which mean they will lose $0.76 for each $1 that the stock declines. Here\u2019s how it impacts their holding:<\/p>\r\n\r\n\r\n\r\n<figure class=\"wp-block-table\">\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>100 shares<\/td>\r\n<td>100 Deltas<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>1 short call<\/td>\r\n<td>-76 Deltas<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net position<\/td>\r\n<td>24 Deltas (24 shares)<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/figure>\r\n\r\n\r\n\r\n\r\n\r\n<p>The underlying position will initially behave like owning just 24 shares. The correlation will increase to an exact -100 in coming weeks if AAPL remains above $230. The stock can drop more than 6 percent without generating any losses. In fact, the trader may make a small profit because the calls had $5.59 of time value that will decay over the next three months.<\/p>\r\n\r\n\r\n\r\n<p>This strategy can be useful when investors have made money in a stock and expect a limited pullback. The calls essentially lock in a sale price while extracting some extra time value.<\/p>\r\n\r\n\r\n\r\n<p>But there\u2019s still risk in the event of a steeper drop. In this case, the investor will lose money if AAPL closes below $209.10 expiration. (That&#8217;s the 230 strike minus the $20.90 premium collected.)<\/p>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">Understanding Covered Calls<\/h3>\r\n\r\n\r\n\r\n<p>Options traders should remember that covered calls always generate a credit. That means they <strong><em>get paid now\u00a0<\/em><\/strong>and agree to do something later. (Debit trades are the opposite,\u00a0<strong><em>costing money now\u00a0<\/em><\/strong>but potentially making money later.)<\/p>\r\n\r\n\r\n\r\n<p>Performing a covered call will always limit potential profit because the right to own the stock above the strike price has been relinquished. They also provide\u00a0<em><strong>modest\u00a0<\/strong><\/em>downside protection.<\/p>\r\n\r\n\r\n\r\n<p>Traders looking for big rallies may want to consider <a href=\"https:\/\/www.tradestation.com\/insights\/2024\/05\/08\/bullish-and-bearish-key-points-about-vertical-option-spreads\/\" target=\"_blank\" rel=\"noreferrer noopener\">bullish call spreads<\/a> or owning calls outright. Investors worried about bigger drops could also explore\u00a0protective puts\u00a0or bearish vertical spreads.<\/p>\r\n\r\n\r\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\r\n\r\n\r\n<p><em>Options trading is not suitable for all investors. Your TradeStation Securities\u2019 account application to trade options will be considered and approved or disapproved based on all relevant factors, including your trading experience. See\u00a0<a href=\"https:\/\/www.theocc.com\/Company-Information\/Documents-and-Archives\/Options-Disclosure-Document\">www.TradeStation.com\/DisclosureOptions<\/a>. Visit\u00a0<a href=\"http:\/\/www.tradestation.com\/Pricing\">www.TradeStation.com\/Pricing<\/a>\u00a0for full details on the costs and fees associated with options.<\/em><\/p>\r\n\r\n\r\n\r\n<p><em>Margin trading involves risks, and it is important that you fully understand those risks before trading on margin. The Margin Disclosure Statement outlines many of those risks, including that you can lose more funds than you deposit in your margin account; your brokerage firm can force the sale of securities in your account; your brokerage firm can sell your securities without contacting you; and you are not entitled to an extension of time on a margin call. Review the\u00a0Margin Disclosure Statement at\u00a0<a href=\"https:\/\/cdn.tradestation.com\/uploads\/margin-disclosure-statement.pdf\">www.TradeStation.com\/DisclosureMargin<\/a>.<\/em><\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>Covered calls are one of the most common strategies for\u00a0options traders. While many investors have heard of them, they may not realize that covered calls are highly versatile. This article will cover how the method can be bullish, neutral and even bearish. First, a\u00a0covered call\u00a0consists of owning shares and selling calls against them. The calls [&hellip;]<\/p>\n","protected":false},"author":39,"featured_media":65200,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"footnotes":""},"categories":[77,14],"tags":[],"class_list":["post-65274","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-education","category-options","et-has-post-format-content","et_post_format-et-post-format-standard"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Bullish, Neutral, Even Bearish: 3 Ways Options Traders Can Use Covered Calls | Market Insights<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.tradestation.com\/insights\/2025\/09\/21\/covered-call-bullish-neutral-bearish-3\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bullish, Neutral, Even Bearish: 3 Ways Options Traders Can Use Covered Calls | Market Insights\" \/>\n<meta property=\"og:description\" content=\"Covered calls are one of the most common strategies for\u00a0options traders. While many investors have heard of them, they may not realize that covered calls are highly versatile. This article will cover how the method can be bullish, neutral and even bearish. First, a\u00a0covered call\u00a0consists of owning shares and selling calls against them. 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Drawing on more than two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories \u2013 especially those overlooked by other commentators. 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This article will cover how the method can be bullish, neutral and even bearish. First, a\u00a0covered call\u00a0consists of owning shares and selling calls against them. 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Drawing on more than two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories \u2013 especially those overlooked by other commentators. 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