Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

Wall Street seems to have shaken off its summer lethargy as the S&P 500 and Nasdaq tiptoe back toward record highs, powered by upbeat vibes from renewed U.S.-China trade talks. Officials from both countries have agreed on a framework for ongoing negotiations, suggesting that the world’s most scrutinized economic frenemy relationship may be (very cautiously) thawing. Add to that the fading specter of a so-called “Trumpcession”—a term coined during more turbulent times—and markets are breathing easier. Investors seem to be embracing the possibility that politics may yet take a backseat to pragmatism—at least for now.

Meanwhile, after a heated exchange last week between Elon Musk and Donald Trump—I’m sure you’ve heard about it—the two may ironically be finding common ground as the fallout from the recent L.A. riots sparks shared calls for law and order. Over in the options market, sentiment is shifting noticeably. Traders are pulling back on hedges, with the put-call ratio slipping to 0.62, and bullish positioning gaining traction as optimism creeps back in. Whether this marks a true turning point or just another twist on the ‘2025 rollercoaster’ remains to be seen.

“Good-To-Know’s”

A version of this is the primary risk involved when investing in covered calls. Yes, you still have the other risks associated with stock ownership (underlying tanking to 0, etc.), but covered calls cap your potential. In essence, the "loss" isn't always a direct financial loss, but rather the foregone profit that could have been earned had the stock been held without the call.

For example, say you bought XYZ at $50 per share, and it now sits at $53 per share. You sell a covered call on the stock for $55 per share. This means that if XYZ is above $55 per share, you will be obligated to sell your 100 shares at the strike price of $55. So, if at expiration, XYZ reaches $70 per share, you will have made $5 per share + the premium received from the call, but you will have missed out on $15 per share.

You didn't lose this money, but it feels like you did. Opportunity Costs.

Quote(s) I Like

Thought Throttle

In a world where investors and traders are constantly chasing the next big idea, it’s easy to overlook the quiet strategies that generate consistent results. Covered calls aren’t flashy, but they offer something far more valuable: control, predictability, and cash flow.

A covered call is an options strategy where an investor sells a call option against shares of a stock they already own. Doing this, they collect a premium in exchange for agreeing to sell their shares at a specified price, the strike price, if the stock reaches or exceeds that level by expiration. This strategy is used when an investor expects limited short-term upside and wants to generate income while holding the stock.

This is what it looks like illustrated:

For anyone serious about rounding out their ‘financial toolbox,’ understanding covered calls isn’t optional—it’s essential. But here’s the real question—should you write a covered call, or would it be best to just sell the shares outright? The answer isn’t always obvious, and understanding the trade-offs can make a meaningful difference to your bottom line. Let’s break down when each path makes the most sense.

Selling Covered Calls

It is best to sell covered calls when the stock is not a loser—and is not in immediate and realistic danger of becoming a loser. You need to be OK (at a minimum) with selling at the strike price. Once you write that contract, you’re handing over control of the upside. If the stock takes off, that extra return is no longer yours.

There are several situations where selling a covered call can make more sense than selling the stock outright. Maybe you expect the stock to chop around in a tight range or rise modestly in the near term. Maybe you’re fine parting ways with it—but only at a better price. And when volatility is high, those premiums get even more attractive, offering solid income that can be hard to turn down.

It’s also a useful strategy for trimming a position gradually. Instead of hitting "sell" all at once, covered calls allow you to step down your exposure while still staying in the game. Not to mention the tax aspect.

If you're sitting on large unrealized gains, there's a tax angle that needs to be considered. Taxes on covered calls can get complicated—while we touch on the basics at the end of this newsletter, it’s usually best to consult a tax professional for guidance on your specific situation.

Bottom line: covered calls work best when you’re neutral-to-slightly-bullish, patient, and want to squeeze more out of a stock you’re not quite ready to say goodbye to.

Selling The Stock

If the stock is a loser, get out of there. If you are bearish at all, it is usually best to get out. This is the overarching theme of when to exit the holding immediately, instead of selling calls. If you retain nothing else, retain this: Do not hold onto losers. This will only break your heart—and drain your wallet.

Some other reasons investors would typically sell outright include expecting a price drop or deterioration in the business, the stock hitting your price target with no clear upside ahead, needing to free up cash, or simply de-risking your personal balance sheet.

If the fundamental story of the company has changed, it’s often better to take the win (or the loss) and redeploy that capital elsewhere. Don’t throw good money at bad money.

Selling covered calls in these scenarios can create a false sense of productivity. It might feel like you're doing something smart—generating income while holding a position you’re no longer excited about—but in reality, you’re just delaying a decision that needs to be made.

There is also a temptation to sell calls when we are just slightly bearish, but so many traders and investors have been burned doing this. Using the premiums from covered calls to catch the falling knife is very often a bad idea. Best to get out and find something with a future.

Importantly, you must stay honest with your thesis. If you wouldn’t buy more shares today, and you wouldn’t want to own the stock a year from now, ask yourself why you're still in it. Covered calls are a valuable tool, but they aren’t a safety net for bad investments, nor a substitute for conviction. In these cases, selling the stock outright might be the cleaner, wiser move.

Here is a table that helps summarize some key differences:

Trade Mechanics

Robinhood (HOOD) seems to be a fairly mainstream stock to own right now. Assume we owned 100 shares of HOOD, which were purchased at the beginning of the year for $40 per share.

Given its recent run-up, say we believe that it is going to hover around the $70 mark, and we would be alright with selling the stock at $80 (doubling our money—woohoo), since we are largely neutral on HOOD. We could sell 1 contract of the July-18-2025 $80 call option, and receive $3.25 in premium.

If the stock does not go above the strike price by expiration, we would keep the premium of $3.25 per share, along with our 100 shares of HOOD. We would have made a couple of dollars by simply taking on the potential obligation to sell the stock at a price that we were happy with. Not a bad tradeoff.

However, if by expiration, HOOD was up above $80 per share, then we would be assigned and have to sell our 100 shares of Robinhood. We would keep the premium, along with the gains from selling the shares at the higher price ($80) than when we purchased ($40). We would have gains on the shares of $40 [Calculated as $80 Strike - $40 Cost Basis] per share, plus $3.25 per share from the premium received.

This is a $43.25 gain on a $40 investment, or a return of 108.13%. Very good for a couple of months.

2.0 Version

If you were also happy with the potential obligation of purchasing more shares of HOOD at $60 per share, you could turn this into a covered strangle. This would be done by selling a July-18-2025 $60 Strike Put, receiving a premium of $1.55. This would bring our net premium received up to $4.80.

If HOOD were below $60 per share by expiration, our put would be assigned, and we would purchase additional shares at $60, a price that we deemed acceptable, along with keeping the $480 in premium.

If the stock were between $60 and $80 by expiration, we would simply keep the $480 premium and would no longer be obligated to buy or sell more shares.

If Robinhood were above $80, we already know what would happen. Assignment and the sale of the stock at $80 per share, while keeping the premium.

Note

It is obviously uncommon for a stock to double in 6 months, like HOOD has done (almost), and this should certainly be taken into account when reviewing this setup. In other words, this example and these returns are atypical and shouldn’t be expected as the norm.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

Throttle Q&A

What are the tax implications of being assigned on a covered call?

When assigned, you trigger a sale of your underlying shares. If you've held them for over a year, you may qualify for long-term capital gains—under a year, and it's short-term (taxed at a higher, ordinary income rate).

Premiums from covered calls are generally treated as short-term capital gains, regardless of the holding period. Be aware, writing covered calls in a Taxable/Non-Qualified account (Normal; Not an IRA, 401(k), etc.) can create a complex cost-basis scenario, especially if you roll contracts.

Should I always roll my covered calls before expiration?

Not necessarily. Rolling helps defer assignment and keep the premiums flowing, but it can lead to mistakes if done habitually. If the roll reduces total credit or drags your breakeven higher, it may not be worth it. Sometimes letting the shares get called away, then resetting at better prices, is the smarter move.

Choose to roll strategically, not emotionally. A good rule of thumb is to treat a roll as an independent trade. Would you enter this trade if your original position did not exist?

Is there an optimal strike delta I should target consistently?

It depends on your goal:

• For income, 30–40 delta strikes yield more premium but increase assignment risk.

• For lower assignment risk, 10–20 delta strikes are safer, with less yield.

Think of delta as your probability of assignment. A 30-delta call has about a 30% chance of finishing in the money. You should understand your goals, along with the tradeoffs.

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