$AMD The Hidden Cost of Covered Calls
AMD started the year around $214 and closed Friday near $517. That kind of move shows how expensive selling covered calls can become when a stock rallies hard.
Imagine buying 100 shares near $192 in early February and selling an April $220 covered call for a $10 premium per share. You collect $1,000 upfront.
But when AMD reaches $278 by April 17, your shares are called away at $220. You keep the premium, but you miss out on everything above your strike price.
Then AMD climbs further, eventually reaching $658 earlier this month.
At that peak, the difference between the market price and your $220 strike was $438 per share — or $43,800 in potential upside across 100 shares.
Even after the pullback, the gap remains substantial.
Now consider the other side of the trade. Covered calls offer only limited downside protection. If AMD falls, that $10 premium cushions the loss by just $10 per share. It doesn't prevent a much larger decline.
The takeaway: Covered calls can generate income in sideways markets, but they come with a trade-off. Your upside is capped, while most of the downside risk remains yours.
When a stock makes a powerful move, that trade-off can become very expensive.
#AMD