"You own at least 100 shares of Tesla ( NASDAQ:TSLA | TSLA Price Prediction). Hankwitz used a purchase price of $220 per share. Through your brokerage, you sell someone the right to buy those 100 shares at a higher strike, say $250, by a set expiration date. The buyer pays you a cash premium up front, say $500. The call is "covered" because you already own the shares backing it. One contract equals 100 shares, so 200 Tesla shares means two contracts."
"Three things can happen by expiration: Tesla finishes below $250. The contract expires worthless. You keep the shares and the $500. Next month, you write another one. Tesla finishes right at $250. Same outcome. You keep the shares and the premium. Tesla rockets past $250 to $300. You are obligated to sell at $250, giving up $50 per share of upside. You still bank $30 per share in capital gain plus the $500 premium."
"Co-host Robert Croak framed the bargain directly: "You're trading some of your upside potential for guaranteed income today." When the stock stays below the strike, he added, you "do it again and again and again.""
"Tesla is a favorite for covered-call writers because option premiums scale with volatility, and Tesla has plenty. The stock carries a beta of 1.793 and has traded in a 52-week range of $273.21 to $498.83. Shares closed at $443.30 on May 14, 2026, up 21.72% in the past month. That kind of move is exactly what call writers fear (capped upside) and love (fat premiums) simul"
Covered calls involve owning at least 100 shares and selling a call option contract that gives someone else the right to buy those shares at a higher strike price by a set expiration date. The seller receives a cash premium upfront. If the stock finishes below or at the strike, the option expires worthless and the seller keeps the shares and the premium, then can write another call. If the stock rises above the strike, the seller must sell the shares at the strike price, giving up some upside, while still keeping the premium and realizing capital gains. High volatility can increase option premiums, making volatile stocks attractive for this strategy.
Read at 24/7 Wall St.
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