Selling options sounds scary, but two strategies make it approachable and defined-risk. Both are favourites for generating steady income.
Covered call
You own 100 shares and sell a call against them.
- You collect the premium as income.
- If the stock stays below the strike, the call expires worthless — you keep the shares and the premium. Repeat.
- If it rises above the strike, your shares get called away at the strike — you still profit, you just capped your upside.
It’s “covered” because you already hold the shares, so there’s no naked, unlimited risk. The payoff looks just like a short put.
Cash-secured put
You sell a put and set aside the cash to buy the shares if assigned.
- You collect the premium.
- If the stock stays up, the put expires worthless — free income.
- If it falls below the strike, you buy the shares at the strike (effectively at a discount, thanks to the premium you kept).
Great when you’d be happy to own the stock anyway and want to get paid while you wait for a better entry.
They’re two sides of the same coin
A covered call and a cash-secured put have the same payoff shape. Picking one is mostly about whether you already own the stock (covered call) or want to acquire it (cash-secured put).
The wheel
Chain them together and you get the wheel: sell cash-secured puts until assigned, then sell covered calls on the shares until they’re called away, then start over — collecting premium at every step.
Mind the trade-off
Premium income is real, but you’re capping your upside and still carry downside (you own, or may be forced to own, the shares). These aren’t free money — they’re a sensible way to trade time and volatility for income on stocks you like.
Try both in the strategy library to see the payoff and breakeven before you commit.