Covered Call Strategy Advanced Guide (Rolling & Risk Management)

[00:00:00]This covered call guide will go over my best practices, how to open a covered call, close a covered call, manage it, as well as the riskmanagement process from start to finish of a covered call.

[00:00:10]And I will end with an example of me rolling covered calls live in July 2026.

[00:00:15]I'm not a financial adviser and this is for educational purposes only. Let's get into the education. Then my live current example in my portfolio going into August 2026 of me rolling a covered call up and me also rolling a covered call down. Covered calls and how to create income from stocks that you already have. Or if you've gotten assigned by selling a put option, you have stock.

[00:00:38]Well, you can still create income. Let's go over that. Let's say that you already own shares of a stock that you really like. Maybe you picked it up from a cash secure put that you got assigned from, or maybe you've just been holding it for years. Either way, it's just sitting in your account doing nothing. Well, you should be creating income on every single position that you have that has a 100 shares. You should be selling covered calls. Covered calls basically take shares you already own. They turn them into income producing assets. Okay?

[00:01:03]Even if they pay dividends, that's fine.

[00:01:06]You can now create an essential another dividend, a huge dividend by selling a covered call. And at its core, a covered call is very simple. You're agreeing to sell your shares at a specific price.

[00:01:17]the strike price by a specific date in exchange for making this agreement.

[00:01:21]Essentially, someone else pays you an upfront premium, right? So, again, it goes back to the beginning of this course where like the hotel room um someone wants to lock in or you want to lock in that hotel room for $500 a night and you're scared that it's going to increase. Well, that's the same example here. When you sell a covered call, you are actually selling someone else the right to buy your shares from you at that price. So, for example, let's say that you have a stock you just bought in today into Nvidia for $110 per share.

[00:01:47]Okay? And you're happy at 110 or you got assigned that 110. Either way, you are okay selling it at 120. Well, instead of saying, "I'm okay selling at 120." We'll see what happens. Why not get paid today, right now, to sell a covered call at 120? So, check it out. If you sell a 120 covered call and you end up selling this covered call 30 days out for 120 and you get paid $5, that's amazing.

[00:02:13]That's awesome because look, here's what can potentially happen. Here's the scenarios. Scenario one, I mean, nothing happens. Nvidia stands still and you've collected $5 of premium. So, that's good. Like, you've made money. Now, let's say that Nvidia slightly goes up from like 110 to like 115, 117,45, 118, 92. Doesn't matter as long as it goes up. but under 120. Well, you actually made money on the stock and you still got the $5 worth of premium that you've collected. So now you have like best of both worlds. You're making money on the stock appreciating in value.

[00:02:44]You're making money on the premium.

[00:02:46]That's amazing. You have like two sources of income essentially. Now I will tell you if it goes above 120 that's no longer yours. Like bye-bye.

[00:02:53]It's not yours. And you know that might be disappointing until you realize like going from 110 to 120 is like almost you know let's call it a 9% return. return.

[00:03:03]It's not quite 10%, but it's like a 9% return. If you got paid $5, like that's another 4.5% return. All of a sudden, you made 14%. And if that's in 1 month period, because Nvidia has higher implied volatility, I mean, that's a lot of money. 14% in one month. So, if it rises above the strike price, your shares, they will get called away and you will have to sell them. But at the strike that you agreed on, so you agreed on 120, then bye-bye. At 120, you get rid of them. Of course, there's some like tax consequences there, but hey, you make money, you pay taxes. I just want you to be aware. Not a tax adviser, and I usually don't talk about taxes, but want you to be aware that, you know, you're making money. You you'd have to pay taxes and this situation would be amazing going for 110 to 120 plus you have the $5 worth of capital. Now, there's another scenario. Other scenario is Nvidia crashes. It's a scam, which is not the case. Um, I mean, we never know in this life, so probably not the case.

[00:03:58]most likely very very small chance. But I'm just trying to paint an example of Nvidia goes down a lot. It goes down to 60 bucks, 70 bucks, right? You're gonna lose money. You're going to lose money just like anyone in the world lost money. I mean, when the stock market crashes, everyone loses money. So, when a stock crashes and you're using this strategy, you're going to be down. But keep in mind, you're able to close out the covered call any time. And the covered call actually still helps you a lot because had you had just the stock and Nvidia went from 110 to 70, you lost $40. But at least when you did a covered call, if Nvidia went from 110 to 70, you lose $40, but you've collected five in premium. So you've only lost $35. So scenario A versus scenario B, still better to be an option investor. So actually selling a covered call will make you safer than just investing in stock because a stockholder is going to lose more. So when you buy stock and stock goes down, you don't have cushion.

[00:04:51]So yeah, selling covered calls is safer than just investing in stocks. And this is where covered part comes into play and that's where the name covered call comes from. You already own the stock and you're covered. You sell a call option. So you're covered. If it goes up, well, you you'll have to lose your shares. So that that's why it's called the covered call. And there's really no dangerous situation. Okay? So if it goes down, that's pretty much the worst that can really happen. And if it goes up a lot, you can't really lose because you're covered. You have the shares. So if it goes up from like $110 to $710, that probably can't happen in a year.

[00:05:28]That would be extremely weird for a high market cap company that's already worth almost 3 trillion. It's like 2 and a half or whatever. To go up seven times would be impossible, but you get the point. If it were to go up a lot, you wouldn't really lose any money, but you wouldn't make the money. like you wouldn't be able to participate above $120 per share, which again is fine because you would make 14% in a month and Nvidia or any stock's probably not going to 7x in one month. But keep in mind, if you're really, really, really bullish, you probably wouldn't want to sell a covered call or you would want to go higher on the strike price or sell like a lower delta, like a very small delta. That way, you get income, but you still have a lot of upside. It's really far from the current price of the stock.

[00:06:07]Now, let's talk about choosing the strike price for a covered call. There's a few ways to go about this depending on your goal. If you're looking for maximum income, you might choose a strike price that's closer to the current stock price. So again, we can actually go back to the Nvidia example. If it's 110, you might just want to sell a 112 or a 115 strike price because it's going to have a lot of income. Now, this gives you a higher premium, but it also has a higher chance of getting assigned. So if you'd rather give your shares more room to grow, you might want to choose a strike price that's further out of the money and that premium will be smaller, but the odds of assignment also drop so you have more room for upside. So there's no perfect answer and everything is a trade-off when it comes to option trading. And the expiration date works the same way. Shorter expirations like weekly or twoe options give you quicker paydays and they're a lot more flexible, but they also require a lot more work.

[00:06:58]So, you might have to adjust the position, close the position. Um, and you're just more actively trading, which kind of isn't the passive income system that I personally build and I personally follow. I try to reduce the workload and make less decisions cuz when you're making more decisions, you're likely to make mistakes. Now, let's talk about stock selection for covered calls. The moment you start selling covered calls, you realize something very important.

[00:07:21]This isn't just about owning stock. It's about owning the right stocks because not all stocks are created equal. When it comes to generating consistent income, you want a stock that has good momentum. A stock that is basically cooperative with the covered call strategy. And good momentum just means that the stock has had positive results and it's likely to continue to run up higher. When a stock has, you know, multiple months of good performance, that's a very good sign. When a stock is all over the place and it's like like this, you probably don't want to do a covered call strategy. The best covered call stocks are the ones that give you decent premium without massive price swings. You want boring. You want steady. You want reliable. Because remember, the goal is to generate consistent income, not to hit a home run. If you want to hit home runs, well, you got to probably buy some call options and and hope that timing works out in your favor. One of the most important things to look at in terms of a stock that it doesn't have huge and wild gaps. So, a gap is basically when a when a stock goes from 80 to 90 real quick. And yes, it's not always good if a stock is going up a lot because the covered call strategy is for consistent safe income, you know, per month making 5%. Let's say if a stock is gapping up and it went from 80 to 90 and it basically has a more than a 10% increase in a single month. You know, it can still be a good covered call um to do, but you know, probably you're going to leave some money on the table because it has a very high amount of volatility and it's it's rising a lot. Um then again, if the stock is up a lot over the past month, you probably didn't get assigned when you sold your put. So, you wouldn't even be able to do the covered call to begin with. So, you wouldn't even be really in this situation. But, keep in mind, you just want stability. You want a stock to positive growth over like 3 to 6 months, but you don't want a stock to be up like 90%. Although, if it's up 90% and you actually believe in the stock, there are situations where you can sell puts to get assigned at a cheaper price. But oftent times, I've just noticed that those are a little bit more risky positions. But when it comes to large cap established companies, I want to say that there really isn't a bad time. If you look at Microsoft, Apple, Amazon, all the money is going to these companies. And these companies not only they are innovating, they're just dominating. So if you go for a company that's dominating, it's good for both selling puts and covered calls. So you know, starting off the strategy by selling puts, fantastic. And then uh generating money with covered calls is great as well because uh you know these Mac 7 stocks, they are typically moving up over a long period of time. Of course, in one single month, you can have some issues. And maybe that's like a tariff issue with Apple. Maybe it's some chip demand for Nvidia, but in in the long term, you're going to see a really good result. And actually, even if the stocks pull back, that's that's a good thing because you get to buy more of them at cheaper prices. One question I get all the time is, what if I pick the wrong strike? The good news is there's really no such thing. Let's say that you pick a strike that's just too low and the stock runs up. You still make money on the shares and the premium. Let's say that you pick a strike that's too high and the stock stays flat. You still get to keep the premium and your shares, although this situation will be a little bit less than ideal because you will be making less income. And this whole free course is about creating enough income so you can retire. So, you generally want to be a little bit closer to the money. So, you know, 30 delta or 35 delta is okay as well because you generally want to have a little bit higher income. If you go a little bit out of the money for a covered call, then you're not really making that much from option income.

[00:10:45]There's also advanced tweaks that you can make once you get comfortable. For instance, if your stock has run up quickly and you're deep in the money, you might choose to buy back your short call and sell a new one further out.

[00:10:56]This is also called rolling. Or if you're nervous about a pullback, you might choose a lower strike price and actually move your strike price down to collect more income. This would also be an example of a roll. Let's show you an example of rolling a covered call up.

[00:11:10]Let's also show you an example of rolling a covered call down. All righty, guys. Let's go over the first example, which is going to be rolling a covered call higher. This is an actual position in my portfolio right now. This is going to be on Chipotle stock. Chipotle is currently trading for $33 per share in late July 2026. And here I have 1,000 shares and I'm actually up 5% on my position. I've made $1,600 on the total position. It's actually worth exactly $33,000. makes up about 6% of my portfolio. Now, I have a covered call right here and this covered call is actually in the money. The covered call is in the money because Chipotle stock is above the strike price that I have, which is 32 1/2. However, the in the money value right now is only 50. I'm very, very slightly in the money. And what I want to do right now is I want to roll this position higher because I really like Chipotle stock and I don't want to let go of the stock. And this option expires on August 21st, which is a little bit less than a month from, you know, when I'm making this video. So, because Chipotle is a month away and I don't want to lose the shares and ideally I want to have a higher strike price, what I can do is simply just roll this position higher. So, I'm going to click into this option right here. And you'll see that I have 10 contracts that I sold. My break even is $34.50. That break even is just referring to the strike price plus the premium that I collected for the option that I sold.

[00:12:25]Okay, I'm only down $520 here. I'm actually going to quickly go to simulate my return because I want you to understand what happens if I don't roll.

[00:12:32]If I don't do anything, well, essentially, I'm actually going to make some money on this option position. And the reason I'm going to make this money is because right now there's still a lot of time value left on the option. So, it's a little bit kind of more expensive, which is actually why I typically roll in the final week. But, I'm also thinking about rolling this a little bit sooner because I'm actually bullish on Chipotle here in the next few weeks. I think we're going to have a nice run on the stock. So, let's just go with that view. Okay? And I'm going to roll a little bit earlier. But you can see here if I don't do anything I will actually do very well in this option because time decay is going to eat away at it. And because I have sold an option, time decay helps me. It doesn't hurt me. It helps me because time decay eats away at the option and it's going to go down and it's only going to be worth 50 because it's only in the money by 50. You can see right now it's worth $2.50, but at expiration it's going to lose $2 of this if Chipotle stays at $33. Because think about it, the intrinsic value right now is only 50. So where's other $2.50 coming from? Well, just time really. So after time passes and the option expires, I'm going to end up collecting the rest of this uh exttrinsic value. But if it's in the money by 50, it'll be worth 50. But anyways, let's go to trade. Let's go to roll position because I can actually roll this and still do really well with it. So I'm going to click uh select new position. All right. And I can change this strike price as well as expiration date. So, let me move it over into, you know, from the current expiration, which is August. Let me just move it over into September, which is honestly not even that much of a roll. It's only a roll of 30 days. So, rolling this by 30 days, it's not that much more time. But, let's just see what I can do with this. Now, unfortunately, I will bring one thing up with Chipotle. It doesn't really have the best strike prices. So, as you can see here, it skips from 32 1/2 all the way up to 35. So, not that ideal. And if I want to roll this up in a short amount of time, I'm going to have to pay a debit. It's going to cost me money. So, instead, what I'm going to do is I'm going to go back to roll position. Okay?

[00:14:29]And all that means is I can still do well with this option. I can still collect the credit and move my strike price higher by simply just adding more time. So, if I go to January now, you can see the January 35 covered call option. It's worth $345.

[00:14:44]So, if I expand this option right here, you can see the delta is, you know, 0.51. The IV is 42. So I do look at IV whenever I sell options. The higher the IV, the better. But again, if it's too high, you have to ask yourself, why is this option so, you know, high in implied volatility? Maybe there's something wrong with this with the stock, right? You always want to be aware of that. But here in this case, 42 IV is pretty good. So let me go for roll this position. And now you can see I'm adding a little bit more time. I'm actually adding 147 days, which isn't a whole lot of time. It's definitely more than just, you know, one month option that I'm rolling for one month out here.

[00:15:18]147 days. Okay, kind of medium time frame, but the total credit is $930. But that's not really over. That's not the only kind of thing here. Not only am I collecting a credit of $930, but I'm also moving the strike price from $325 to 35. That is awesome. That is amazing because the whole goal with the roll is to change the strike price. Okay, the credit is just added bonus. The credit is just like sprinkles or salt on top of that steak. I don't know, sprinkles on a cake or salt on a steak. [laughter] All right. So, the total credit of 930 is just extra added bonus. Great. But the real benefit that I'm getting is I don't have to let go of my shares of Chipotle. If I like the stock, I don't want to let go of it. I'm literally rolling from 32 1/2 to 35 and I'm getting paid to roll. I don't know what can get better than that. So, that's kind of the first example of rolling up.

[00:16:06]Now I'm also going to show you an example of rolling down because there's also cases of you know wanting to roll a stock lower. So for this example I'm going to use SoFi stock. So stock has been just trading sideways and that's not really a bad thing. I mean years to date it's down a lot but lately it's just been going sideways. And look this is not a video on stock selection. This is more so a video on managing covered calls and how to use covered calls. So whenever I see a stock that's going sideways and I think hey what should I do with my covered call? Well, honestly, this is kind of an opportunity for me to get more aggressive with my covered call strategy. So, for example, you can see here that my covered call that I have on SoFi, I have a 19 covered call, okay?

[00:16:46]And I'm up $5,600. Let's just say, let's take the viewpoint for education here that I want more aggressive income. I want to take a risk that I want more income, but I have a higher risk that I might lose the shares. Well, what would I do? I would simply roll this position down. So, so far I have a 19 covered call. Let's just say, hey, I'm I'm kind of frustrated with the stock. It's not going anywhere, and I just want income today. I want to collect that premium.

[00:17:11]And if it goes above my strike price and I have to lose my stock or roll it, as I just showed you in the previous example, roll up. Then, you know, that's the risk that I'm willing to take. Great. So, here's what I'm going to do. I'm going to go to trade, roll position, and I'm going to roll the SoFi 19 call. I can roll it down. So, look, I can actually roll it down for the same expiration date. So, let's just say I don't change anything. I just go down. Let's say I go down by just, you know, 0.5 or, you know, $50 here in terms of per 100 shares. So, nothing really changes. You can see ch time change, no no change, zero change, but I get a credit of 1700 uh $1,785 because I'm moving lower. And moving lower gives me a higher risk. It gives me a higher delta. There's a higher chance of this option going into the money and me, you know, potentially having to lose the shares. Now, if I actually add time to this trade and I roll it down, let's go for the 18. You can see how I can go from 19 to 18, which is still an out of my option, and I'm adding 28 days. But now you can see the total credit, some big big juicy credit, like almost $8,000 here in terms of the the credit that I would collect here by rolling the SoFi 19 covered call down to 18. If you want to learn more about covered calls or rolling, I have all this information, my full free retirement course here on YouTube. It's the best form of content that I ever made and this video will definitely be worth your time to learn more about this strategy specifically. You can check it out right here. But I warn you, you must take out some notes because there's going to be a whole lot of new information for you to study.