How to earn extra income from your Nestlé shares - without taking on unnecessary risk

If you’ve been investing in Nestlé SA for years and plan to hold your shares for the long term, you may wonder if there’s a way to get more out of your investment without taking big risks or trading away your peace of mind. The covered call strategy is a practical, conservative method to generate a bit of extra income from shares you already own. Here’s how it works—explained for long-term investors who want clarity, not jargon.

First, what is a “covered call”?

A covered call is a type of options strategy. But what is an option?

• Option: A financial contract that gives someone the right, but not the obligation, to buy or sell a stock at a specific price before a certain date.
• Call option: This gives the buyer the right to buy your shares at a set price (called the “strike price”), before the option’s expiry date.

When you sell a call option on shares you own, you receive a cash payment (called a “premium”) up front. In exchange, you agree that if the share price rises above the strike price, you might have to sell your shares at that price.

This is called “covered” because you already own the shares. You are not borrowing or betting on margin.

Why might a long-term investor use a covered call?

Imagine you own 100 shares of Nestlé and expect to keep them for years. If the share price is moving sideways, or only rising slowly, you can earn extra income by selling a call option.
This strategy is most appealing when:

• You are not expecting a major rise in the share price in the short term.
• You are comfortable with the idea of selling your shares at a slightly higher price if required.

The real example: selling a covered call on Nestlé

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Let’s break down a specific example, with all the numbers:

• Shares you own: 100 Nestlé (NESN)
• Current share price: about 87.50 CHF (late May 2025)
• Call option you sell: Strike price 89.00 CHF, expiry June 20, 2025 (23 days away)
• Premium you receive: 0.75 CHF per share (so, 75 CHF total)

What does this mean for you?

What can happen next? Scenarios

Step-by-step calculation example

Let’s say you originally bought Nestlé at 87.50 CHF.

Scenario A: Price is 88.50 CHF at expiry

• Option expires unused, you keep shares
• You keep the 75 CHF premium
• Your shares are worth a bit more than before

Scenario B: Price jumps to 91.00 CHF at expiry

• You must sell shares at 89.00 CHF
• You keep the 75 CHF premium
• Your total sale value is 89.00 + 0.75 = 89.75 CHF per share
• You miss out on further gains above 89.75 CHF

Scenario C: Price falls to 85.00 CHF at expiry

• Option expires unused, you keep shares
• Premium softens your paper loss:
• Loss per share: 87.50 - 85.00 = 2.50 CHF
• After premium: 2.50 - 0.75 = 1.75 CHF per share net loss

Is there a catch? Important risks to understand

• Your profit is capped. If Nestlé’s price soars, you do not get any gains above the strike price (plus the premium).
• You still bear most of the downside. The premium helps a bit if the stock falls, but it does not protect against big drops.
• You may have to sell your shares. If the share price rises above 89.00 CHF, you will be required to sell your shares at 89.00 CHF.

How much does it cost? What’s the ROI?

• There are usually no extra fees for selling a call (apart from standard trading commissions).
• ROI example:
• 0.75 CHF premium on an 87.50 CHF share is a return of about 0.86% for 23 days.
• If repeated several times a year, this can add up, but results will vary.

Frequently asked questions

What if I don’t want to sell my shares after all?
You can buy back the call option before expiry, usually at a higher or lower price, depending on where the share price is.

Is this risky?
The main risk is missing out if the share price rises a lot. The premium helps with small declines, but doesn’t protect against bigger drops.

Can I keep repeating this strategy?
Yes, as long as you own at least 100 shares, you can continue selling calls for extra income. Some investors use this approach as a steady, conservative income stream.

Conclusion: Should you consider this?

The covered call strategy is not a way to “get rich quick.” Instead, it’s a practical tool for long-term investors who want to earn extra income from shares they already plan to hold, while accepting a cap on their potential gains.

Before using this strategy, be sure you’re comfortable with the possibility of having to sell your shares—and that you understand the risks involved.