Covered calls are one of the first ways investors make their way into learning options. Without adding any risk a new investor can "wet their feet" in the complex world of options and slowly gain the knowledge to expand.
Covered calls are simply when one owns, or buys stock and then sells a call to cover their shares. As an example if one owned shares of a stock at $100 and sold $105 calls then they would enjoy the upside profit from $100 to $105 but anything above that would likely belong to the call buyer. Of course the buyer would have paid the shareholder for the right to buy the stock at $105 which further adds to the shareholders net profit.
As a shareholder that is seeing his shares gain in value almost everyday so far in 2018, they have to ask themselves if selling covered calls is even a worthwhile venture at this point. Selling out of the money calls today has only resulted in an in the money call just a few days later. With this in mind, and the strength of the markets these days, let's talk about scaling into those covered calls.
Assume you have 500 shares of a stock at $100. Instead of selling calls immediately at $105 or some out of the money price, let's consider selling only one call option. Selling one call option at $105 will bring in some premium to reduce the cost of your position (thus reducing risk) but you are still able to enjoy the ride on the other 400 shares. As (if) the price of the underlying continues to rise you could sell one call option at a time along the way. Eventually scaling into a full 5 call option position and being completely covered.
The resulting credit, or premium for these calls would have the opportunity to be much larger than if you sold all 5 calls immediately at the $105 level.