Stop Calling the Covered Call an Income Strategy. Here Is What It Really Does.

In this Cherry Bomb, Tom Preston clears up the single biggest misconception about the covered call. it is not really an income strategy or a hedge, it is a way to reduce the cost basis of your long stock, which lowers your risk and can lift your potential return. once you see it that way, picking the call to sell gets a lot simpler. He walks the two decisions that matter: how far out of the money to go, which sets your max return on the stock, and how much the call reduces your cost basis. as a starting point he looks for about 5 percent out of the money and roughly a 2 percent cost basis reduction, in a liquid 30 to 50 day expiration with tight spreads. none of this is a trade recommendation. 📊 tastylive: https://www.tastylive.com/ 📰 Get Tom's pre-market analysis every morning: https://www.tastylive.com/newsletters 📘 FREE Options Strategy Guide: https://tinyurl.com/bp9ms763 📱 Follow tastylive on X: https://x.com/tastyliveshow Chapters 00:00 What a Covered Call Actually Is 00:45 Why You Sell a Call: Cost Basis Reduction 02:13 Picking the Expiration and Checking Liquidity 03:13 How Far Out of the Money to Go 04:57 How Much the Call Cuts Your Cost Basis 06:13 The 5% and 2% Starting Point 07:19 Narrowing Dozens of Strikes to Two or Three #tastylive #coveredcall #cherrybomb #tompreston #optionsincome #costbasis #optionsforbeginners #wheelstrategy #optionstrading #optionseducation tastylive is a real financial network, producing hours of live programming every day. Follow along as our experts navigate the markets, provide actionable trading insights, and teach you how to trade. With over 120 original segments, and over 25 personalities, we'll help you take your trading to the next level, whether you are new to trading or a seasoned veteran. tastylive content is created, produced, and provided solely by tastylive, Inc. ("tastylive") and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read all applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange Traded Options Risk Disclosure Statement found at https://tastytrade.com/disclosures/. Past performance is not indicative of future results. Performance is not presented net of all commissions, fees, and expenses. Multi-leg option strategies incur higher transaction costs than single leg trades as they involve multiple commission charges. Examples provided are for illustrative, informational, and educational purposes only and are not intended to be reflective of results you can expect to achieve. Supporting documentation for any claims, including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.