Identifier: C4T5L1 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Calculate covered-call returns across downside and upside states. 2. Measure foregone upside against stock ownership. 3. Identify coverage and delivery requirements.

Prerequisite: C4T4L5 and the completed earlier classes. Foundation: Stock Market School.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

A covered call combines underlying ownership with a short call on matching units. Premium modestly offsets a fall and sells some upside; it does not insure the share position. Under the declared cash settlement, the short call pays a difference while the investor keeps shares. A physically delivered variation may require delivery of those shares. “Covered” describes the source of deliverables or economic hedge, not a guarantee that the overall investment cannot lose.

Price and return drivers

For units bought at S0 and a matching short call, terminal profit before costs = units ×[min(S,K) −S0 +premium]. The stock and call must have the same underlying units and any corporate-action adjustment must be reconciled. Breakeven = S0 −premium +costs per unit; maximum profit is limited by strike minus initial share cost plus premium minus costs. At zero, most of the stock capital can still be lost. Receiving premium does not create a separate risk-free yield.

Worked case

Buy100 synthetic shares at100 and sell1 K110 call at premium4, multiplier100; total stock and option charges40, zero funding only for this isolated comparison. Cash paid net is10000−400+40=9640. At expiryS80,100,130 the stock P/L is−2000,0,+3000; short-call P/L before fees is+400,+400,−1600. Combined net is−1640,+360,+1360. Maximum profit1360; breakeven96.40. Stock alone atS130 would earn3000 before its own costs, so the capped call participation gives up1600 before the common charge boundary.

Adverse case

AtS0 the covered position loses9640: premium covers only a small fraction of the share collapse. Before expiry atS115, supplied stock sale bid115 and call buyback ask8 produce liquidation proceeds11500−800=10700; against net entry9600 and total charges40, net profit1060. This differs from the expiry cap1360 because the short still has time value. Selling the shares first leaves a naked short call until it is closed; its risk is then no longer covered.

Practical use

Match share custody and call deliverables. Under physical settlement, preserve shares until delivery is resolved; selling the holding first can leave an uncovered short.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use the strategy only when selling or economically surrendering gains above strike fits the ownership plan. A shareholder who must retain shares should not assume a physically settled call will lapse. If distributions, voting control or delivery constraints matter, check the actual specification and custody. Decline if the income objective disguises an unacceptable equity drawdown. Compare holding the shares without the call and buying a put when downside protection is the actual objective.

Practice and references

Exercise:100 shares bought80; short1 K85 call premium3, multiplier100; costs30. Solution: Maximum net gain=(85−80+3)×100−30=770. Breakeven77.30. AtS50 the net loss is(50−80+3)×100−30=−2730. The additional300 premium changes the loss slightly; it does not transform equity risk into fixed income.

Takeaway: Covered calls sell upside while retaining most equity downside; coverage is not principal protection. Reference links: product card, formula; glossary: Covered call; Foregone upside. Next: C4T5L2. Topic test.

Sources: Borsa Istanbul: Options (retrieved 2026-10-26; General information and basic concepts). Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: All Strategies (retrieved 2026-10-26; Strategy descriptions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide