Covered call

Construction: read every leg

Own 100 shares at 100 and sell the 105 call for 2.00. Maximum terminal profit is 500 stock appreciation plus 200 premium, or 700. Breakeven is 98. At zero stock value the position loses 9,800. Selling the shares while leaving the call open removes the coverage.

Read the ticket before the graph

BUY means you own an option right; SELL means you accept a short-option obligation. Positive quantities are long and negative quantities are short in the calculation. Check quantity, call/put, strike, multiplier and expiry before netting premium.

All legs in this example share November 20, 2026 expiration. The entry observation is October 6, 2026, with fictional QLT at 100. These are independent illustrative premiums, not a current option chain or executable quotes. The terminal diagram assumes every leg and any shares are resolved at one common settlement price.

Before expiry: time and volatility

The position remains generally bullish but with less Delta than the shares alone. The short call adds negative Gamma and typically negative Vega. A large rally creates opportunity cost because gains beyond the strike are surrendered.

Manage the position deliberately

Only sell a strike at which selling the shares is acceptable. Examine dividend and early-assignment considerations. Compare rolls using current economics rather than insisting on an old accounting cost basis.

From opening cash to a settlement result

Read the opening instructions: sell 1 105 call at 2.00. Also hold 100 shares bought at $100.00. Option opening cash is $200.00 received as a credit. A received credit is not earned profit while the obligation remains open.

Set the common settlement price to 110.00. Calls have intrinsic value max(S−K,0); puts have max(K−S,0). Subtract the opening premium from each intrinsic value, then multiply by signed quantity and the 100-unit multiplier. Shares contribute their price change from their own cost. The calculation popup shows every leg.

The combined result is $700.00 before costs and $699.35 after illustrative opening fees of $0.65. Exit fees, slippage, funding, dividends and taxes are not included. Opening fees are 0.65 per option contract, not a statement of any broker's pricing.

Maximum terminal profit is $700.00; maximum terminal loss magnitude is $9,800.00, before costs. Isolated zero-P/L settlement points in the model: 98. Move the scenario slider across each strike and explain why the slope changes there. A strike is a contract threshold, not a prediction.

This terminal model is useful for comparing risk shapes, but actual American-style assignment, share delivery, forced liquidation or a failed multi-leg exit can produce a different path. A long protective leg is not an automatic instruction that a broker must exercise it when another leg is assigned.

Open the calculation without leaving this lesson

Check your understanding

Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.