Covered Call Case Study — Turning 100 Shares into a Monthly Paycheck

The Setup

She Already Had the Asset. She Just Wasn't Charging Rent.

Sarah had held 100 shares of a large-cap dividend-paying stock for four years. She believed in the company, reinvested the dividends, and didn't plan to sell anytime soon. Her shares were just sitting there.

A colleague mentioned covered calls at a lunch break. Sarah spent two weeks reading — then sold her first call option the following Monday morning. That week, $78 appeared in her account. She hasn't stopped since.

The strategy: each week, she sells one call contract (which controls 100 shares) at a strike price 4–6% above the current stock price, collecting the premium upfront. If the stock doesn't reach that strike, the option expires worthless and she keeps every dollar. If it does get called away, she sells at a price she'd be happy with anyway.

I didn't sell a single share. I just started charging rent on what I already owned — and the income showed up every single week.

— Sarah, Retail Investor

Performance Data

Weekly Premium Income — Full Year

Weekly Premium Collected ($) · 52 Weeks

How It Unfolded

The Covered Call Timeline

Week 1

First Contract Sold

Sold 1 call contract, 5% OTM, 7-day expiry. Collected $78 premium. Option expired worthless — kept the full amount.

Month 2

Finding the Rhythm

Experimented with different strike distances (3%, 5%, 8% OTM). Settled on 5% as the sweet spot between premium income and assignment risk.

Month 4

First Assignment — Then Buyback

Stock rallied hard. Shares were called away at the strike. She bought them back two days later (slightly higher) and immediately resumed selling calls. Net: still profitable.

Month 12

$4,200 Collected

Across 52 contracts, averaging $80.77 per week. The dividend yield alone was 2.4% — covered calls pushed total yield to 10.8% on an otherwise static position.

Weekly Breakdown

The Numbers at a Glance

Metric	Value
Share count	100 shares
Stock cost basis	~$50/share
Average weekly premium	$80.77
Strike distance (avg)	5% OTM
Expiry used	7-day (weekly)
Times assigned	3 of 52
Total premium, 12 months	$4,200
Yield on cost (premium only)	8.4%

How a Covered Call Works

The Mechanism

01

Own 100 Shares

The shares serve as collateral — you don't need extra cash.

02

Sell 1 Call Contract

Choose a strike price above current market. Collect premium immediately.

03

Wait for Expiry

If stock stays below strike → option expires worthless. Keep 100% of premium.

04

Repeat Weekly

Reset the cycle. 52 rounds per year = 52 premium payments.

Comparison

Dividend Alone vs. Dividend + Covered Calls

Annual Income Comparison — $5,000 Position

Key Takeaways

Covered calls work best on stocks you're already happy to hold long-term. The premium is a bonus — not the reason to buy the stock.
Selling 5% OTM strikes balances income against the risk of getting called away. Closer strikes earn more premium but raise assignment risk.
Getting assigned isn't a failure. It means your stock hit the target price you set. You can simply buy back and continue the strategy.
Weekly expirations generate the highest annualized premium yield because time decay (theta) accelerates in the final 7 days before expiry.
This strategy works in flat or mildly bullish markets. In a strong bull run, you may underperform by being capped at your strike price.