Selling Covered Calls p/l


thought my total p/l would be 0.05c lost per share (-$5) + premium I received for the call (+$10) making the total +$5. Is this math correct?

I'm guessing that the call has not expired, but it is now worth less than $0.10 and more then zero, so you'd need to pay some premium to close out the short option leg. Your "gain" on the option would be something less than $10. If the option is now worth $0.05, for example, then your p/l is zero (5c lost on the stock and 5c gained on the option).

Also would I be correct in stating my total possible p/l is $40 ($10 from option sell, and +$30 if the stock price is at or above $3)?

Correct. Your upside is limited but your downside is not. (Technically you maximum loss is $2600 if the stock goes to zero, but the point is that there's no downside protection other then the extreme case.)

If this is true, am I right in assuming that as long as I am long on an option, and always have a set exit price, then there is no downside to selling covered calls?

No, that's not true. Selling a covered call just lowers your "breakeven point" if you hold everything to expiry by the amount of the premium. So your breakeven point for the stock is now $2.60 instead of $2.70. If you sell at $2.60, you will actually lose some since the option will still have time value. Plus you'd need to include whatever transaction costs you incur (both explicit as in commissions and implied as in the bid/ask spread) in your loss. Yes you might be able to exit the position before you get to zero PnL but I wouldn't call that "no downside".

So you are correct in that it is "too good to be true".


The price then fell to $2.65, so I thought my total p/l would be 0.05clost per share (-$5) + premium I received for the call (+$10) makingthe total +$5. Is this math correct?

Also would I be correct in stating my total possible p/l is $40 ($10from option sell, and +$30 if the stock price is at or above $3)?

Correct on both, if at expiration the stock is at $2.65 then the short call expires worthless and your p/l is $5 and if your shares get called away you get the premium and $3/share. If you continue to sell covered calls I suggest tracking your adjusted basis (purchase price less sum of received premiums) in a spreadsheet if your brokerage doesn't track it for you.

If this is true, am I right in assuming that as long as I am long onan option, and always have a set exit price, then there is no downsideto selling covered calls? It seems like that is too good to betrue...and the stock market was not made to win so easily...right?

I'm not clear on what you mean by being long on an option in the context of covered calls, but there's always a downside/risk. With covered calls you are whittling away at your basis but you're also limiting upside potential.


As per the other answers, for expiration, your calculations are correct.

If this is true, am I right in assuming that as long as I am long on an option, and always have a set exit price, then there is no downside to selling covered calls? It seems like that is too good to be true...and the stock market was not made to win so easily...right?

This is a misstatement. It should say "long the stock" not "long on an option".

In a narrow sense, if you own the stock then there is no option risk when selling a covered call. However, there is opportunity risk in that you give up the upside profit potential above the short call's strike price.

Of greater importance is that the risk lies with the stock. You are risking $2.70 to make a maximum of 40 cents. That's an asymmetric R/R which many traders do nor care for.