A covered call is a popular options income strategy where you own shares of a stock and sell (write) call options against those shares. By selling the call, you collect a premium which provides immediate income and a small buffer of downside protection. In exchange, you cap your upside potential at the strike price of the call sold.

The static return (also called the unassigned return) is the return you earn from the premium alone if the stock stays below the strike and the option expires worthless. It is calculated as: Static Return = (Premium Received × Shares) / (Cost Basis × Shares). The if-called return is the total return if the stock is called away at the strike price, including both the premium income and any capital gain or loss from the stock.

The breakeven price is your cost basis minus the premium received. Below this price you begin to lose money on the combined position. The downside protection is the percentage by which the stock can fall before you start losing money, expressed as premium divided by the current stock price.

Formulas

Max Profit = (Strike - Cost Basis + Premium) × Shares

Breakeven = Cost Basis - Premium Received

Static Return = (Premium × Shares) / (Cost Basis × Shares) × 100

If-Called Return = Max Profit / (Cost Basis × Shares) × 100

Downside Protection = Premium / Stock Price × 100

Example

You own 100 shares at a cost basis of $98, the current stock price is $100, and you sell a $105 call for $3.00. Max profit is ($105 - $98 + $3) × 100 = $1,000. Breakeven is $98 - $3 = $95. Static return is ($3 × 100) / ($98 × 100) = 3.06%. If-called return is $1,000 / $9,800 = 10.20%. Downside protection is 3.00%.