tock options may feel risky and unfamiliar for many traditional investors. You may worry about the possibility of losing your entire investment or simply not know how to spot opportunities in the options market. Both of these concerns are valid. However, not all option strategies carry the same level of risk or complexity. In this article, we’ll explore how selling call options works, why it may appeal to long-term investors, and what sensible alternatives might look like.
What Are Call Options?
A call option gives the buyer the right, but not the obligation, to purchase a specific asset at a predetermined price (the “strike price”) on or before a specified expiration date, in exchange for paying an upfront premium. The seller (also called the writer) receives that premium and accepts the obligation to deliver the asset at the strike price if the option is exercised by the buyer.
To illustrate, let’s look at the numbers using the S&P 500 SPDR ETF (NYSE: SPY). As of November 2025, SPY is trading around $670.97.
Suppose you expect SPY to rise modestly over the next week and you opt to buy a call option rather than purchase 100 shares outright. Instead of buying 100 shares for $67,097, you could purchase a call option contract (representing 100 shares) that gives you the right to buy SPY at, say, a $685 strike price before expiration, for a premium of perhaps $95 (just as a hypothetical figure for illustration).
Now consider these three scenarios:
- SPY rises to $700: You exercise the option to buy at $685, you immediately resell at $700, earning a $15 gain per share × 100 = $1,500, minus the premium cost ($95 × 100 = $9,500), so net profit roughly $1,500 – $9,500 = –$8,000 (note: this is only a realistic example if the premium were set accordingly; just to illustrate how leverage works).
- SPY falls to $650: The call expires worthless, so you lose 100% of your premium ($9,500) — far less than if you had bought the shares and lost $2,000 in market value, but your entire option premium is at risk.
- SPY remains near ~$670: The call expires worthless (since strike is $685 and SPY is below that), so you lose your full premium ($9,500). If you’d held the shares however, you’d have only a modest unrealised loss.
The essential takeaway: buying calls offers potentially high returns with much less capital at risk, but also a clearly defined maximum loss (the premium). However, because short-time horizon options often have expensive premiums (due to time decay and uncertainty), investors frequently find them risky and difficult to profit from.
Why Sell Call Options?
Selling call options can be a more conservative way to participate in the options market — especially for long-term investors seeking additional income from their portfolios. One common approach is the covered call strategy: you own the underlying asset (e.g., shares of stock or ETF) and you write (sell) a call option against that holding. If the stock remains flat or modestly rises, you keep the premium; if it rises sharply, your stock may be called away (i.e., you must sell it at the strike price) but you still keep the premium and any stock gain up to the strike.
Investors often employ covered calls for a few reasons:
- It generates incremental income beyond dividends or interest.
- It gives a modest downside buffer (the premium offsets some loss if the stock falls slightly).
- It aligns with a more conservative, income-oriented mindset rather than aggressive speculation.
That said, the primary risk is opportunity cost: if the underlying asset rises significantly above the strike, your upside is capped—you may have to sell the shares at the agreed strike price, thereby foregoing further gains. For many investors, that trade-off (capped upside in exchange for extra income) is perfectly acceptable.
Strategies for Selling Call Options
Here are three selling-call strategies ranked from simplest (and most conservative) to riskiest:
- Covered Calls: You own the underlying shares and sell a call option at a strike above your cost basis or target price. This is by far the most popular among long-term investors because of its simplicity and alignment with a buy-and-hold stock posture.
- Diagonal Spreads: This is a slightly more sophisticated approach. You buy a longer-term call option at a lower strike (giving you “synthetic” ownership) and you sell a nearer-term call option at a higher strike. The income from the nearer-term sale helps offset the cost of the longer-term purchase. This strategy uses less capital than buying the shares but is more complex than a simple covered call.
- Naked Call Writing: This is the riskiest variant. You sell a call option without owning the underlying asset. If the asset price rises significantly, you may be required to buy the shares at market price to fulfill the obligation—potentially exposing you to unlimited loss. Because of that risk profile, naked calls are generally reserved for highly experienced traders.
Alternatives to Consider
If your goal is to generate income and manage risk and you feel that even covered calls or option strategies are too complex or uncertain, here are alternatives:
- Consider higher-yielding asset classes such as dividend-paying stocks (for example utilities or consumer-staple companies), or high-quality bonds or real estate investment trusts (REITs).
- Instead of chasing higher returns via leverage or speculative option bets, focus on building a stable, diversified portfolio whose primary goal is consistent performance rather than dramatic upside.
- If options interest you, start with basic strategies (such as covered calls) and invest time in education before moving into more complex or leveraged trades.
The Bottom Line
Call options serve two broad purposes: speculation and income generation. For most long-term investors, speculation in options may be ill-suited due to its higher risk and required agility. By contrast, selling call options—especially via covered-call strategies—offers a structured way to generate incremental income and engage with the options market in a controlled manner. If you decide to explore options, keep the focus on consistency, simplicity, and alignment with your broader portfolio goals.
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