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Why long‑term investors may look for a simple income idea

Many long‑term investors already hold Alphabet shares. After the recent rally, two thoughts often come up:

• “My shares have gone up quickly… should I lock in some of that gain?”
• “But I don’t want to sell everything. What if the long‑term story continues?”

A covered call is a way to stay invested while earning a small amount of extra income. It does this by selling someone else the right to buy your shares at a higher price—but only if the share price rises above that level.

This strategy is popular among cautious, buy‑and‑hold investors because it is simple and uses shares they already own.

What a covered call is, explained in simple terms

A covered call has three parts:

1. You already own at least 100 shares. Options always work in blocks of 100 shares.
2. You sell a call option with a higher strike price (for example, 350 USD).
3. You receive cash immediately, known as the premium.

In exchange, you agree that if the share price rises above the strike price at the option’s expiry, the buyer may choose to buy your shares at that strike price.

A simple way to think about it:

“I’m happy to sell my Alphabet shares at 350 USD. If the price never goes above that level before the option expires, I simply keep the shares and the income.”

The trade‑off is straightforward:

• You earn income now, which slightly softens any small pullback in the share price.
• You limit your upside, because if the share price rises strongly above the strike, you sell at that strike instead of the higher market price.

This is why covered calls are considered conservative—you give up part of the upside but gain immediate income.

The Alphabet example: selling the 350 USD call (expiry 19 December 2025)

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.

In this example, Alphabet trades around 322.77 USD. The 350 USD call option expiring on 19 December 2025 trades near 3.65 USD.

What this premium means in practice

• You receive about 365 USD (because each option controls 100 shares).
• On a position worth around 32,277 USD (100 shares × 322.77 USD), this is roughly 1.1% income for about three weeks.
• The premium slightly “softens” the first part of any decline. Your effective cost level becomes:

322.77 USD − 3.65 USD = 319.12 USD

This is the price at which losses begin after collecting the premium—and it is worth noting that without the covered call, any loss would have already started at the original share price. The premium simply cushions the first part of a decline.

Understanding outcomes — three simple scenarios

1. Alphabet stays below 350 USD
   • The option simply expires.
   • You keep your shares and the 365 USD income.
   • This is the “best outcome” for income investors.
2. Alphabet rises above 350 USD
   • Your shares may be sold (“called away”) at 350 USD.
   • You keep the 365 USD premium.
   • Your gain equals the move from today’s price up to 350 USD, plus the premium.
   • In this example, that total is about 30.88 USD per share (350 − 322.77 + 3.65), or roughly 9.6% over the period.
   • Any price above 350 USD is upside that you give up.
3. Alphabet falls
   • The premium helps with the first 3.65 USD of any decline.
   • Below roughly 319 USD, losses are the same as holding shares normally.

Here is the visual payoff:

Above pictured is the option payoff diagram on its own. The green area shows the profit zone of the option position only, meaning the premium you receive from selling the call. Because this view isolates the option, it shows gains even when the line moves downward — this reflects the fact that the option seller keeps the premium as long as the share price stays below 350 USD. The red area shows the zone where the option seller begins to lose money on the option itself once the share price rises above the strike. However, this chart does not include the gains or losses from the underlying Alphabet shares. When you combine both the option and the shares, the overall position is still bullish, because the rising share price offsets the red option area — up to the point where the upside becomes capped at the strike price.

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Why choose the 350 USD strike?

1. It sits at the top of the market’s “expected range”

This concept can be confusing for beginners, so here is a simple explanation:

• Options traders combine the price of the at‑the‑money call and put.
• This combination, called a straddle, reflects how much the market expects the share price to move by the expiry date.
• For Alphabet, that expected move for this expiry is around 25 USD.

So if Alphabet is at roughly 323 USD, then:

Expected upper end ≈ 323 USD + 25 USD = around 350 USD

This is not a prediction. It is simply the range the options market considers “normal” based on current pricing.

Selecting a strike at the top of that range means:

• You leave room for the rally to continue.
• You still collect meaningful income.

2. Implied volatility is elevated

“Implied volatility” sounds complex, but the idea is simple: when markets expect more movement, option prices go up.

Recent AI‑related news made Alphabet more active than usual. That extra uncertainty increases option premiums. For a covered call seller, higher premiums are good—they translate into more income.

3. Many traders already have positions around this region

Looking at open interest (the number of already‑open contracts):

• There is strong open interest between 330 and 345 USD.
• There is also meaningful open interest at 350 USD.

This does not guarantee anything, but when many traders are positioned at similar levels, hedging activity sometimes slows rapid price moves. In other words:

These open‑interest clusters can act like short‑term “speed bumps”.

For covered call sellers, having a “speed bump” below your chosen strike can offer some comfort.

Managing a covered call position

Covered calls are not just a "set-and-forget" strategy. In many cases, investors choose to manage the position if the share price rises faster than expected.

For example, suppose Alphabet moves higher as we approach the expiry date, heading towards the 350 USD strike. This is generally positive — the underlying stock is performing well — but it may also mean the shares are likely to be sold at 350 USD if the option finishes in the money.

If you prefer not to sell your shares, you can take an active step known as rolling the option:

• Rolling forward means closing the current option and opening a new one with a later expiry date.
• Rolling up means choosing a higher strike price, giving your shares more room to rise.

Many investors roll forward and up at the same time. In some cases, this adjustment can even be done for a small additional credit. The benefit is that you:

• avoid selling your shares,
• extend the income strategy into the next period, and
• set a higher “ceiling” for potential assignment.

Rolling does not remove the trade-offs, but it gives investors more flexibility in shaping both income and upside potential.

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Is a covered call suitable for you??

A covered call may be worth considering if:

• you already own at least 100 Alphabet shares;
• you are comfortable potentially selling those shares at 350 USD;
• you want to earn some income while keeping most of your long‑term exposure.

It may be less suitable if:

• you strongly believe Alphabet could surge well beyond 350 USD soon;
• you do not want to risk your shares being sold.

As always, investors should ensure the strategy fits their personal objectives and should seek independent advice if needed.

Key takeaways

Alphabet’s recent AI momentum has lifted the share price quickly. Rather than guessing whether the rally continues or pauses, long‑term investors can use a covered call to earn income while remaining invested.

The 350 USD call provides:

• a clear, upfront income payment;
• a small buffer against minor pullbacks;
• a predefined level at which you are comfortable taking profit.

For beginners, this is one of the most accessible option strategies—simple, conservative, and built directly on shares they already own.

Frequently asked questions (FAQ)

Do I need exactly 100 shares to sell a covered call?
Yes. One option contract always represents 100 shares. If you own 200 shares, you may choose to sell one or two covered calls.

What happens if I change my mind and don’t want to sell my shares at the strike price?
You can manage the position by “rolling” the option into a later expiry and possibly a higher strike. This keeps the shares and extends the strategy.

Can I lose money with a covered call?
Yes. If the share price drops significantly, you still face the same downside as any shareholder. The premium only softens the first part of the decline.

Is a covered call better when markets are calm or active?
Covered calls generally provide more income when markets expect larger price movements, because option premiums rise during those periods.

What if Alphabet rises far above 350 USD?
If you do nothing, your shares will likely be sold at 350 USD. If you prefer to keep them, you may roll the option to a later expiry and higher strike, often for a small additional credit.