--- title: 'What is a COVERED CALL? ✅ EXPLANATION for BEGINNERS' source: 'https://youtube.com/watch?v=eTpKuhmWx8I' video_id: 'eTpKuhmWx8I' date: 2026-08-04 duration_sec: 513 --- # What is a COVERED CALL? ✅ EXPLANATION for BEGINNERS > Source: [What is a COVERED CALL? ✅ EXPLANATION for BEGINNERS](https://youtube.com/watch?v=eTpKuhmWx8I) ## Summary This video explains the covered call strategy for beginners, focusing on generating extra income from stock investments by selling call options. It covers the basic mechanics, potential scenarios, and ideal market conditions for using this strategy, using Ford as a practical example. ### Key Points - **Introduction to Covered Calls** [00:02] — The covered call strategy is one of the most widely used strategies in financial options, primarily to make extra money on investments by selling calls. - **Personal Use and Motivation** [00:41] — The presenter uses covered calls in virtually all companies they are invested in, especially dividend-paying ones, to earn extra income through premiums, also known as synthetic dividends. - **Example with Ford** [01:23] — Using Ford as an example: bought 100 shares at $10.59, sold a call contract for October 18th at a strike price of $11, and immediately received a premium of $9. - **Main Objective: Avoid Assignment** [02:05] — The primary goal is to never have the shares sold (avoid assignment) while still receiving the premium income. Therefore, it's recommended not to set the strike price too close to the current price. - **Repeat the Technique** [02:54] — If shares are not sold, repeat the technique weekly, bi-weekly, or monthly. For pure profitability, monthly or month-and-a-half intervals are ideal, but weekly is good for learning and practice. - **Synthetic Dividends** [03:53] — The extra money received from premiums can be called a synthetic dividend, as it is an artificial dividend created by the strategy. - **Scenario: Shares Assigned** [04:07] — If the price rises and shares are assigned, one option is to wait for the price to drop and buy back, but selling puts is better. Set the same strike price and receive premiums until shares are bought back. - **Rollover as an Option** [05:19] — Another option is to do a rollover, which is more complex and may be covered in the advanced course or a separate video. - **When to Use Covered Calls** [05:49] — Best used with stable, gradually rising companies or market moments, reducing assignment risk and benefiting from both premiums and price increases. - **Examples: Coca-Cola and Procter & Gamble** [06:49] — These are examples of stable companies that rise with the economy without major shocks, suitable for covered calls. They also pay dividends, adding to the benefit. - **Final Tips** [07:43] — Never sell calls around important events like earnings announcements or dividend distributions, as sharp price jumps increase assignment risk. ### Conclusion The covered call strategy is a powerful tool for generating extra income from stable, dividend-paying stocks, but it requires careful strike price selection and timing to avoid assignment. By repeating the process and using complementary strategies like selling puts, investors can enhance returns while managing risk. ## Transcript most widely used strategies in the world of financial options. Of course, everything you need to know about the cover strategy, all the scenarios that can occur when you use it, and which stocks and market moments are best to use it with. What is Coverc? The CCall strategy is mainly based on making extra money on our investments, and we're going to do this by selling Calls, which I hope you already know what it is because you 've seen it in this video. And as I said, it's one of the most used and personally one of the ones I use the most, because I do n't really like the idea of ​​simply buying and waiting, except when we're talking about gold and silver. Therefore, I use it in virtually all the companies I 'm invested in, especially those that pay dividends. However, these dividends are not particularly high, at most 2 or 3%. And that's why I use the Covercall strategy to earn some extra money in premiums, also known as synthetic dividends. And yes, I know we're in the options course and I'm talking about dividends, but this strategy works very well with these types of dividend-paying companies, since they are very stable in terms of their price and therefore we can use this strategy with less risk. But let's look at it with an example. And as always, I will use Ford as an example. We bought 100 shares at a price of 10.59, having a total investment of $0.059. We make a contract for October 18th at a strike price of $1 and in return we immediately receive $9. And if it doesn't exceed that amount per share, we keep our shares at whatever price they are, plus, of course, the premium that had already been paid to us immediately. In this strategy, our main objective is to never sell the shares to us, that is, to not be assigned to hold the shares, but still receive this extra income or the premiums or synthetic dividend. Therefore, I personally recommend not setting a strike price or selling price too close to the current price, as we run the risk of it exceeding the strike price and therefore our shares being sold. Yes, if they assign us the shares we could even make a profit, but I repeat, our goal in this strategy is to avoid being assigned or having the shares sold to us. If everything goes well and they don't sell our shares, what we have to do is repeat the same technique over and over and over again, whether every week, every two weeks, or for as long as you deem appropriate. In terms of pure profitability, it's usually best to do it every month or month and a half. That's the ideal performance level, but I also understand that you want to do it every week. In fact, I do most of them every week, as it's much more direct and keeps me much more in touch with the markets. At least when it comes to learning and simply practicing, I do recommend doing it every week. Then, when you're already experts, you can aim for maximum performance and do it every month or month and a half. And as already mentioned, we will be receiving this extra money every week, every two weeks, or every month, which we can call a synthetic dividend, since it is not the real dividend, but an artificial dividend that we are creating. Now, what happens if they sell us the shares? Well, that's what we're going to see. You already know that you can watch a completely free course on YouTube, but if you like it and want to learn much more, becoming an expert in financial options, I recommend you check out the advanced course where you will learn much more and join the community of smart investors. Possible scenarios in the cover strategy. Let's say that in the previous example the price rises from $11 and therefore the broker will allocate the shares to us and we will sell them. In this case, we can wait for the price to drop and then buy the shares. However, if you're already at this point in the course, you'll know that selling puts is much better. We set the same strike price at which we were sold the shares, and therefore, until that price is reached and we buy those 100 shares, we will receive premiums. I repeat, we do not want those shares to be sold to us under any circumstances, but obviously we do not know what the price will be every week. Therefore, if we are sold them and have that bad luck, well, there is always a solution to a problem. And the other option we have, and also one of the most used, is to do a rollover, although this is a bit more difficult to explain and I'll think about whether to leave it all for the advanced course or maybe make a video for this free course exclusively about the rollover, since it's long and complicated to explain, although like everything else, if I explain it to you, you'll understand it perfectly. When should you use the Covercone strategy? This strategy will be especially interesting with companies or market moments that have a stable price, but at the same time are rising gradually and without surprises. This significantly reduces the risk of allocation or of having our shares sold, and at the same time we will benefit not only from the premiums, but also from the price increase in the market, since we are not obliged to sell the calls at the same strike price every week or every month. For example, if the price of a stock is 20, I can sell a cabbage. But if at the end of that contract the price is 20.5, our next sale of 21. We can perfectly set it at 21.5. And again, if the price rises to 21, my next call sale will normally be at 22, and so on. And if this company already pays dividends, then I'm going to start collecting them too. So all the better . Some examples, without being investment recommendations and only for educational purposes, could be Coca-Cola or Proctalan Gumbell, stocks that rise in price as the economy rises, but without major shocks. And in case of a shock, we can always sell a put option that is assigned to us and go back to selling calls indefinitely. As you can see in the graphs, both rise gradually and smoothly, and therefore we will be able to benefit from those increases I mentioned earlier and in turn from all the bonuses we will be earning. And if this company also pays dividends, all the better. And one last super-quick tip: never sell cabbage at important times, for example, when the company is going to example, when the company is going to present its results, since it is at those moments that there are sharp jumps due to good or bad results. And don't sell when it distributes dividends either, as it's much more likely that we'll be allocated the shares with the sale of cabbage. If they're selling them to us, it's because someone else is buying them. And of course, the person buying them is interested in keeping the shares even if it means losing a little bit of their premium in order to receive that dividend. If you'd like to you can click here. And if you want to take a look at the advanced course, take a look at the advanced course, which I recommend, you can click here.