Lesson 3 of 8
Covered Calls & Protective Puts
Using options to protect or generate income on shares you own
Covered Call
Own 100 shares, sell a call against them
Collect premium as income
Cap your upside if stock surges
Best in flat or slightly up markets
Protective Put
Own 100 shares, buy a put as insurance
Pay premium to limit downside
Like car insurance for your stock
Best when you're worried about a crash
If NVDA stays below $220, you keep the $500 premium and your shares. If it blasts past $220, your shares get called away at $220. You made money, just not as much as holding.
Covered-call ETFs (they do this for you)
JPMorgan Equity Premium
S&P 500 + covered calls. High monthly income, you give up some upside.
JPMorgan NASDAQ Equity Premium
Same idea on the NASDAQ-100. Higher yield, more volatile underlying.
Global X NASDAQ 100 Covered Call
Caps almost all upside. Total return has badly lagged QQQ. High yield, low total return.
Global X S&P 500 Covered Call
Similar problem: collects premium monthly, misses the rallies that make stocks work.
Covered-call strategies are not free income. You're trading upside for yield. Good for retirement income, bad for compounding.
income play
Selling covered calls monthly on shares you own is one of the most popular income strategies. Some funds (like JEPI and QYLD) do this automatically.
Check yourself
You own 100 shares of NVDA at $199 and sell a $220 call for $5. NVDA goes to $250. What happens?