Covered Call

Selling a call option on shares you already own, collecting the premium in exchange for capping your upside.

Example

Owning 100 shares at 100 and selling a 110 call for 2 caps the gain at 1,200 if the share rises.

The premium is often described as income, but it is paid for giving away gains above the strike.

Call Option — A contract giving the buyer the right, but not the obligation, to buy an asset at a set price before or on a set date.
Protective Put — Buying a put option on shares you own to limit the loss if their price falls.

Appraising one position: maximum loss, break-even, cost and what you are really betting on — Before any derivatives trade, write down five numbers. If you cannot fill them in, you are not evaluating a position - you are guessing. (11 min)
For most readers, nowhere - and the exceptions are narrow — Derivatives can hedge specific risks or adjust a portfolio at a known cost, but they are not needed to invest well, and for most people the right allocation is zero. (8 min)