Covered Call vs Cash-Secured Put
Two sides of the same income-generating coin
The Quick Answer
Covered Call
You already own the stock
Sell the right for someone to buy your shares at a higher price.
Cash-Secured Put
You want to buy the stock
Sell the right for someone to sell you shares at a lower price.
How Each Strategy Works
Covered Call
You own 100 shares of NVDA at $140. You sell a call option at $150 strike for $3.00 premium ($300 total).
- → If NVDA stays below $150: Keep shares + $300. Repeat next month.
- → If NVDA goes above $150: Sell shares at $150 + keep $300. Total profit: $13/share.
Cash-Secured Put
You want to buy NVDA but it's at $140. You sell a put option at $130 strike for $2.50 premium ($250 total). You set aside $13,000 cash.
- → If NVDA stays above $130: Keep the $250. Cash freed up. Repeat next month.
- → If NVDA drops below $130: Buy 100 shares at $130. Effective cost: $127.50 (strike minus premium).
Side-by-Side Comparison
| Covered Call | Cash-Secured Put | |
|---|---|---|
| You start with | 100 shares | Cash (to buy 100 shares) |
| You want the stock to | Stay flat or go up slowly | Stay flat or drop a bit |
| Best outcome | Stock just below strike at expiry | Stock just above strike at expiry |
| Worst outcome | Stock crashes (you still own it) | Stock crashes (you buy at strike) |
| Opportunity cost | Miss gains above strike | Cash tied up in reserve |
| Typical premium | 1-3% per month | 1-3% per month |
When to Use Each Strategy
Use Covered Calls when you...
- • Already own shares you're happy to sell at a profit
- • Think the stock will trade sideways or up modestly
- • Want income while holding long-term positions
- • Have stocks sitting in your portfolio "doing nothing"
Use Cash-Secured Puts when you...
- • Want to buy a stock but think it's a bit expensive
- • Have cash sitting around earning nothing
- • Would be happy to own the stock at a lower price
- • Think the stock will stay flat or go up
The Wheel: Using Both Together
Many income traders combine both strategies in a cycle called "The Wheel":
-
1
Sell cash-secured puts on a stock you want to own. Collect premium while waiting.
-
2
Get assigned — You buy 100 shares at your chosen strike price.
-
3
Sell covered calls on your new shares. Collect more premium.
-
4
Get called away — You sell your shares at a profit.
-
5
Repeat from step 1 with your cash.
The wheel keeps you generating income whether you own shares or not.
Risk Comparison
Both strategies have the same downside risk
If the stock drops 50%, you lose roughly the same amount with either strategy. With a covered call, your shares are worth less. With a cash-secured put, you buy shares that immediately drop.
The key difference is when you take on the risk. Covered calls mean you already own the stock. Cash-secured puts mean you're waiting to buy if it drops.
Capital Requirements
Covered Call
100 shares × current price
NVDA at $140 = $14,000
Cash-Secured Put
100 shares × strike price
$130 strike = $13,000
Cash-secured puts often require slightly less capital since you choose a lower strike price.
The Bottom Line
Already own shares? Sell covered calls to generate income while you hold.
Want to buy shares? Sell cash-secured puts to get paid while you wait for a better entry.
Want continuous income? Use both in The Wheel strategy.
Find Covered Calls
Screen for the best calls on stocks you own
Find Cash-Secured Puts
Screen for the best puts on stocks you want