Getting Paid to Hold Nvidia: Understanding the Covered Call

For the investor stuck between selling and holding

Maybe this is you. You own Nvidia, you've made a killing, and part of you wonders whether Michael Burry is right that the chip cycle could take a big fall someday. But selling the whole position right now feels like a waste.

There's a tool built for exactly this in-between spot, one I actually use on my own shares: the covered call.

In one line: a covered call is a strategy where you promise to sell shares you already own, on a specific future date, at a specific higher price, and you collect a cash premium up front for making that promise.

How a covered call works

Here's an example. Say you hold Nvidia near $204 a share and you think, "It might be a little overpriced, but not so overpriced that I want to dump it. If it goes higher, though, I'd gladly get rid of it."

What you can do is sell a call. In the options chain you pick a future expiration, say September 18, 2026, and in the call section you set a strike where you'd be happy to sell, say $250.

Someone will pay you $3.37 per share for that right. Roll that over and over and it adds roughly 8.8% of annual income on top of your shares.

Two outcomes, and neither is bad

On September 18, only two things can happen.

The stock finishes above $250: your shares get called away, but the $3.37 premium is yours. It's as if you sold at $253.37. Since you were willing to sell at that level anyway, that's no loss.

The stock finishes below $250: you keep the shares and you keep the $3.37. You can sell another call at the next expiration.

Either way, the premium stays in your pocket. That's why I describe it as collecting rent on a stock.

If you want to be more aggressive

The lower you set the strike, the bigger the premium, but the higher the odds your shares get sold.

On that same September 18 expiration, drop the strike to $220 and the premium jumps to $10.39 per share. That's effectively selling at $230.39, and if you assume you roll it repeatedly, the annualized return climbs to about 27%. To be clear, that doesn't mean you make 27% in two months, it's the annualized figure if the same setup repeats.

Expiration	Strike	Premium	Effective sale price	Annualized (if repeated)
Sept 18	$250	$3.37	$253.37	~8.8%
Sept 18	$220	$10.39	$230.39	~27%

Do it for the right reasons

Here's the one thing I want to stress. Options let you get paid to buy and sell stock, but you have to use them for the right reasons.

A covered call fits when you own the company and you're in that ambivalent state: okay to sell, but not dying to. If the thought of the stock hitting $230 makes you say, "At that price I'd gladly sell," then $230 is your candidate strike.

If, on the other hand, this is a core position you'd never want to sell at any price, a covered call is the wrong fit. You'd be capping your own upside right when a genuine breakout could happen.

A checklist before you sell a call

Here's the order I actually run through:

• Am I truly okay selling at this strike? (I never set a strike at a price I'd regret selling at.)
• Is the premium enough to justify the upside I'm giving up?
• Does this option line up with my long-term view on the name, rather than fighting it?

I only sell the call when all three are yes. Matching the option to your long-term strategy is the whole point.

Wrapping up

Nvidia is a great company that isn't going away. But that fact and what you do in your portfolio this moment are two separate questions. If the buy decision itself is what you're wrestling with, set your buy price first in Nvidia's valuation: what's a fair price.

The covered call is one option for that gray zone between selling and holding, earning cash while you wait. Just don't get seduced by a flashy 27% annualized figure. Always start from the same question: would I really be okay selling at this price?

FAQ

Q: Is a covered call always a win? A: No. You do collect the premium, but if the stock blows past your strike, you give up that upside. In a genuine bull run, that can sting.

Q: Can I sell a call without owning the stock? A: Technically yes, but that's a naked call, not a covered one, and the risk is far greater. The covered call in this piece is only used when you actually hold the shares.

Q: How do I choose the strike? A: Pick a price where you can honestly say, "I'd gladly sell here." If you'd regret selling at your strike, the whole strategy is misaligned.