An options trading strategy where an investor buys stock and sells call options against it is known as a buy write. Also known as covered write. To learn more about buy write, see Covered Call writing.
Before expiration and assignment
The diagrams and worked outcomes describe expiration payoffs, not an option’s market price before expiration. Time decay, implied volatility, rates, dividends and bid-ask spreads affect early closing values. American-style short options can be assigned early; a protective long option is not automatically exercised when a short leg is assigned. Closing or exercising one leg can change the remaining position’s risk.
Payoff summary
Maximum profit: Call strike price minus the stock purchase price, plus the call premium received.
Maximum loss: Stock purchase price minus the call premium received, if the stock falls to zero.
Breakeven
Stock purchase price minus the call premium received, provided that price is at or below the call strike.
Amounts are per share before fees. Multiply by the shares covered by the position; standard equity options usually cover 100 shares per contract. If a maximum profit or loss calculation gives a negative amount, use zero. These figures assume matching contracts held to expiration and do not include financing or early assignment.
