Somebody will pay you today for the right to buy your stock in the future

You already understand covered calls. You've just never had a reason to call them that.

Say you own a car worth $20,000. Your neighbor likes it. He isn't ready to buy today, but he doesn't want to lose it either.

So he offers you a deal. He hands you $500 right now. In exchange, you agree that for the next three weeks, he can buy the car from you for $21,000 if he decides he wants it.

You keep the $500 either way. That part is done.

Three things can happen from there, and all three are worth thinking about before you take the money.

• He walks away. You keep the car and the $500.
• A collector decides your model is suddenly worth $26,000. He buys it for $21,000. You made $1,500 total, and you watched $5,000 walk down the road.
• The market for that car collapses to $15,000. He walks away. You own a car worth $15,000 and you're holding $500.

That's a covered call. Everything else is vocabulary.

The same deal, in stock language

On the evening of 30 July, Monster Beverage closed at $97.65.

If you owned 100 shares, you'd have $9,765 sitting there.

Here is the call side of the option chain on the same page — the list of people willing to make you an offer, and what each one will pay.

Read the Strike column as "the price I'd be agreeing to sell at." Read Bid and Ask as what buyers are offering and what sellers are asking — you'll usually get filled somewhere between.

Take the $100 line. Bid $2.55, ask $2.95. Call it $2.75 in the middle.

Options are priced per share and sold in blocks of 100. So $2.75 becomes $275, paid to you, today, in cash.

Your side of the bargain: if Monster is above $100 on 21 August, your 100 shares get sold at $100.

That's it. That's the trade.

What the $275 actually buys

Twenty-two days. That's the term of the promise.

On $9,765 of stock, $275 is about 2.8% — for agreeing to a sale price for three weeks.

Which sounds excellent, right up until you ask the question almost nobody asks.

What are you giving up?

Three weeks from now, one of three things is true.

Monster is at $98. The buyer walks. You keep your shares and you keep the $275. This is the outcome people picture when they hear about covered calls, and it does happen a lot.

Monster is at $104. Your shares get sold at $100 whether you like it or not. You made $235 on the stock plus $275 in premium: $510.

Had you done nothing at all, you'd have $635.

So the $275 cost you $125 and your shares. That is the part the sales pitch leaves out, and it is not a disaster — it's just the price of the deal you made.

Monster is at $90. Nobody buys anything. You still own the shares, now worth $9,000, and you have $275.

Down $765, cushioned to $490.

The premium is a cushion. It is not a parachute. Anyone who tells you a covered call protects you is describing the first $2.75 and skipping the rest.

Why the far-away promises pay so little

Look back at that chain and read it as a ladder.

1. Promise to sell at $97.50 — about $3.85 a share
2. Promise to sell at $100 — about $2.75
3. Promise to sell at $105 — about $1.38
4. Promise to sell at $110 — about $0.38

Nobody set those numbers by hand. You're being paid for the odds.

Promising to sell at $110 is nearly free money, because Monster probably isn't getting to $110 in three weeks — so almost nobody will pay you much for that promise.

Promising to sell at $97.50 pays ten times as much, because you're promising away something you're quite likely to have to hand over.

More money up front, less room to run. Less money up front, more room to run. That's the entire dial, and there is no setting on it that gives you both.

Where the candidates come from

The hard part isn't the mechanics. It's deciding which of your holdings you'd genuinely be content to sell at a fixed price, and then finding out what somebody will pay you for that.

Our Covered Call screen does the finding-out part. It runs after the close and lines up companies that pass our fundamental grading and are currently in an uptrend, with the nearest in-the-money and out-of-the-money call for each one already priced.

Two things to be clear about, because they matter more than the returns column.

The Good Stock rating is grading the company's fundamentals — earnings, margins, debt, cash flow. Not the chart, not the products, not whether the stock is going up next week.

And the return percentage is what you'd collect if the trade goes the boring way. It is not a forecast, it isn't annualized, and it says nothing about what happens to the shares underneath.

The question to ask before you ever sell one

Not "how much will I collect?"

"Would I be happy to sell these shares at that price?"

If the honest answer is yes, the premium is a bonus on a sale you were already willing to make.

If the honest answer is no — if you'd be irritated to lose them at $100 — then you're being paid $275 to do something you don't want to do. Some people take that deal anyway. They should at least know that's the deal they're taking.

Takeaway

• A covered call is a paid promise to sell shares you already own, at a set price, by a set date.
• The cash is yours immediately and you keep it in every outcome.
• What you sell is your upside above the strike.
• The premium cushions a fall. It does not prevent one.
• Closer strikes pay more and get called away more often. Further strikes pay less and leave more room.
• The only question that matters comes before the money:

Would I be happy to sell at that price?

Prices captured after the close on 30 July 2026 and they have moved since. Monster Beverage appears here because it happened to sit near a round number that makes the arithmetic easy to follow — nothing above is a view on whether you should own it, or sell calls against it. Options are not suitable for every investor, and covered calls can result in your shares being sold at a price below the market.