A Covered Call to Benefit From a Flat Market

A covered call is created by owning an asset and selling an equivalent amount of call options. To execute this strategy, a trader holds a long position in an asset and writes (sells) call options on that same asset to generate an income stream.

Lucy is holding ETH with a price of $750. She expects that the market will stay flat for a while and wants to possibly lower her cost in the flat market. Therefore, she decides to sell ETH calls with the strike price of $760 and earn the premiums of $50 immediately.

If the price gets higher than $760, she will sell when the option buyers exercise the calls. If the price stays lower than $760 till expiration, she will still get premiums and lower the cost of holding one ETH by $50.

In this example, Lucy employs a covered call strategy as she intends to hold the underlying asset for a long time but does not expect an appreciation in price in the short term, and she is satisfied with selling the assets at a predetermined price.

Please note that FPO v1.0 on FinNexus doesn’t allow for selling options for now.