Covered Call Example

This is a month-by-month walkthrough of a covered call position on AbbVie (ABBV). The goal isn’t to show a perfect trade — it’s to show real decisions at each step.

The Setup

A retired investor runs a $600K portfolio. About $200K is allocated to options strategies. Among her holdings: 200 shares of ABBV, purchased at $145. Today ABBV trades at $175. The stock pays a 3.5% dividend yield.

She’s holding ABBV for income and modest growth. She’d be happy selling at $185 or above. She’s not interested in selling at $175 — she’d be leaving money on the table relative to where she thinks the stock is going.

That’s the mindset that makes covered calls useful here: a defined exit price she’d accept, and a willingness to generate income while she waits.

Step 1 — Deciding Whether to Write a Call

Before touching the options chain, she answers two questions:

What price would I be happy selling at? $185 or higher.
Do I want to risk assignment at current prices? No.

This rules out at-the-money and in-the-money strikes. She’s looking at OTM calls above $175.

Step 2 — Choosing an Expiration

She targets April 4 — 32 days out (32 DTE). Her checklist before committing:

No earnings announcement before April 4. (Earnings would spike implied volatility unpredictably.)
Ex-dividend date is mid-April — after expiration, so no early assignment risk from dividend capture.

Both boxes checked. April 4 works.

Step 3 — Picking a Strike

Here’s the options chain she’s looking at:

Strike	Premium	Delta	Notes
$170	$7.20	0.65	In the money
$175	$4.50	0.50	At the money
$180	$2.40	0.35	OTM, balanced
$185	$1.20	0.22	OTM, comfort zone
$190	$0.55	0.12	Far OTM

She rules out $170 and $175 — she doesn’t want to risk being called away at those prices. The $180 strike tempts her with $2.40, but its 0.35 delta is a rough proxy for roughly a 35% chance of finishing in the money. She’s not comfortable with that.

She chooses $185. The $1.20 premium feels modest, but the delta of 0.22 is a rough proxy for the odds: very loosely, a 22% chance of finishing in the money, so roughly a 78% chance she keeps her shares. The strike also aligns with her actual sell target.

Step 4 — The Trade

Sell to Open: 2 ABBV Apr 4 $185 Calls @ $1.20

2 contracts × 100 shares × $1.20 = $240 collected
Maximum gain (if called away): $185 sale price on shares she bought at $145 = $40/share gain, plus $240 premium
Break-even on the downside: $145 − $1.20 = $143.80 (her cost basis, lowered by the premium)

The $240 lands in her account immediately.

What Happens Over Five Weeks

The first two weeks are uneventful. ABBV drifts to $179, and her calls tick up to about $2.00 in value — slightly uncomfortable, but well below the $185 strike.

By week three, a market-wide pullback pushes ABBV down to $172. Her calls drop to $0.40. At this point she could buy them back for a small profit on the trade, but she decides to hold — the stock is still well above her cost basis, and the calls look likely to expire worthless.

Week four brings a recovery to $176. Week five: expiration arrives with ABBV at $177.50. The $185 calls expire worthless. She keeps the $240.

First cycle result: $240 in premium over 32 days — about 0.69% on her ~$35,000 position, or roughly 7.8% annualized — plus ~$500 of unrealized appreciation and the 3.5% dividend on top.

The Next Five Months

She continues selling calls every 30–45 days. Here’s how the six months play out:

Month	Strike	Premium	Outcome
March	$185	$240	Expired worthless
April	$185	$400	Expired worthless
May	$185	$320	Expired worthless
June	$190	$180	Expired worthless
July	$185	$350	Rolled for $50 credit
August	$190	$280	Expired worthless

Total premium collected: $1,770

Her ABBV position is worth roughly $35,000 (200 shares × $175). That’s 5.1% in six months — about 10.1% annualized — from premium alone, before dividends.

The July entry is worth noting. ABBV rallied sharply and her $185 calls moved deep in the money. Rather than let shares get called away, she bought back the July calls and sold August $190 calls, collecting a net $50 credit. She gave up some upside to stay in the position. That’s a roll — covered in the Rolling Options article.

What If She’d Been Assigned?

In May, ABBV briefly ran to $188. If the calls had been exercised, here’s what happens:

She sells 200 shares at $185 (the strike price)
Profit on shares: ($185 − $145) × 200 = $8,000
Plus all premium collected through May: $960
Total: $8,960 on a $29,000 cost basis = 30.9% return

That’s not a bad outcome. Assignment at a price she pre-selected, with premium on top. The cost is concrete: with ABBV at $188, capping the sale at $185 forgoes $3/share, or $600 on 200 shares, beyond the strike. If the stock had kept running, that gap would have widened. That’s the tradeoff covered calls make explicit.

What She Actually Learned

A few things became clear over six months:

Patience with pullbacks pays. In week three, ABBV dropped to $172 and the calls were nearly worthless. Holding through the dip meant she collected the full $240 instead of closing early for a small gain.

Strike selection is personal. The $180 strike would have collected more premium every month. It also would have triggered assignment in May and July. Whether that’s better depends entirely on whether she wants to sell shares — not on which strike has higher premium.

Premium isn’t free money. In June, IV compressed and her $190 calls only brought in $180. Lower premium months happen. The annualized number smooths that out, but individual months vary.

The six-month summary above is the payoff of patience and consistency, not of any single clever trade.

Where to Go Next

To turn this walkthrough into your own decisions:

Choosing a strike: how she landed on $185 instead of $180, and how to make that call yourself.
Rolling covered calls: the July roll in detail, including when to buy back and re-sell instead of being assigned.
When you get assigned: what actually happens the day a call is exercised, and how to handle it.