Covered CallGME · USRisk: Low

Covered Call on GameStop Corp.

Complete example: Covered Call on GameStop (GME) — including strikes, premium, break-even, and interactive payoff diagram.

Market view

Neutral to mildly bullish

Complexity

Beginner

Sector

Consumer

Typical price

$25,00

Explained for beginners

Covered Call in plain terms

Level

Beginner

Risk

Low

Best in

Neutral to mildly bullish

Goal

Income

What is this strategy for?

Extra income from stocks you already own.

When should I use it?

When you hold a stock and expect a flat to mildly rising price.

How do I earn with it?

You sell a call option on your shares and immediately collect the premium.

What is the main risk?

If the stock rises sharply, you must sell it at the strike and miss the gains above it.

Who should avoid it?

If you never want to sell your shares or expect a big rally.

Educational content, not investment advice. Options carry risk up to the total loss of the capital employed.

Underlying

GameStop Corp. for Options Traders

GameStop Corp. is a US video-game retailer that became the original meme stock in 2021 and has since been driven by the retail "WallStreetBets" community rather than by fundamentals. The stock can jump double digits intraday on a single social-media post or announcement, which keeps IV extremely high and unstable (typically 80-180%). For options that means strictly defined-risk profiles such as debit or credit spreads or — given the low price — cash-secured puts, never naked options; overnight gap risk is substantial and premiums are priced accordingly.

Symbol

GME

Market

IV range

80–180%

Currency

USD

Options note: US exchanges (CBOE/NYSE), American-style, weekly expirations and 0DTE; contract size 100 shares — the low share price keeps capital-per-contract small (relevant for beginners), but extreme IV makes premiums disproportionately expensive.

Overview

Covered Call — Quick Overview

In a covered call, you sell a call option against shares you already own. You immediately receive a premium credited to your account, regardless of how the stock moves. In return, you agree to sell your shares at the strike price if the option goes in-the-money at expiration. This strategy is ideal for investors who want to generate regular income from existing positions in flat to mildly rising markets.

Advantages

Immediate cash flow from premium received
Effectively reduces the cost basis of the stock
Maximum loss clearly defined (stock can only fall to zero)
Simple to implement — ideal for options beginners

Disadvantages

Caps upside: profit potential above the strike is surrendered
No full downside protection if the stock falls sharply
Dividend rights remain but early assignment risk around ex-dividend date
Eurex options on DAX stocks often less liquid than US options

Full Covered Call Guide

Example Trade

Covered Call on GameStop

Illustrative example based on a typical GameStop price of $25,00. Strikes and premiums are indicative — actual market prices will vary.

Position	Type	Strike	Action	Premium
100 Shares (held)	Stock position	$25,00	Long (entry price)	—
Short Call (sold)	Call	$26,00	Sell (credit)	+$0,38
Net credit received				+$0,38 ($38 per contract)

Max Profit

$138

per contract

Max Loss

-$2.462

per contract

Break-even

$24,62

Payoff

Payoff Diagram at Expiration

Profit and loss of the Covered Call on GameStop depending on the price at expiration. Values per contract (100 shares).

Suitability

Why Covered Call for GameStop?

Extremely high IV generates exceptional covered call premiums — sometimes 5-10% of the stock price per month. At the same time, the stock can correct 20-30% in a short time, and the covered call provides only limited protection. For extremely volatile underlyings, very conservative OTM strikes (10-15% above price) and short terms of 7-14 days are recommended.

When is the right time?

1IV Rank above 30% — higher IV means richer premiums
2Neutral to mildly bullish outlook on the underlying
3Already holding a stock position in the account
4Willingness to sell shares if the stock rallies to the strike
5No upcoming earnings event within the option term

Deep Dive

Why GameStop for Options Traders

GameStop is the original meme stock and therefore a completely different options animal than any fundamentally driven underlying. The price does not follow the video-game retailer's revenue or profit, but the mood of the retail "WallStreetBets" community and individual triggers — a post from Keith Gill ("RoaringKitty"), a surprise capital move, a strategy pivot. The result is extreme and, above all, unstable implied volatility of typically 80-180%, which can explode further in squeeze phases. For options traders that means two things: first, premiums are enormously expensive because the market prices in massive jumps; second, overnight gap risk is real — GameStop can open double digits away with no chance to trade in between. Liquidity is surprisingly good for such a speculative name (weekly expirations, 0DTE, $0.50/$1 strikes), but the low price near $25 is deceptive: capital per contract is small, yet premium relative to price is disproportionately high. Only defined-risk profiles belong here.

Strategy Notes

Covered Call on GameStop: Practical Notes

Covered calls on GameStop are only defensible if you already own the shares and are willing to sell them — as a way to at least extract premium from an existing, highly speculative position. The extreme IV produces exceptionally fat premiums (often 5-10%+ per 30 days relative to price), but the downside is brutal: in a squeeze GameStop can rise 50-100% overnight and catapult the short call deep in the money, forfeiting the entire upside above the strike. Anyone running this must genuinely be willing to give up the stock at the strike, and should never buy shares just to write calls against them.

Historical Context

The GameStop saga began in January 2021 with the historic short squeeze that drove the price up several hundred percent within days and forced brokers into trading restrictions — an event that coined the term "meme stock." Since then the price history has run in bursts: long stretches of relative calm interrupted by sudden, community-driven volatility spikes. The 2022 stock split (4-for-1 in share form) increased the share count. In 2024, the return of "RoaringKitty" to social media again triggered double-digit intraday moves and a brief squeeze. The company has repeatedly used its elevated valuation to build large cash reserves via at-the-market equity offerings, which strengthens the balance sheet but dilutes shares; most recently it pivoted toward a crypto/Bitcoin-treasury strategy. The options lesson: IV is not just high but jumpy — it can double or halve within hours, making any vega position highly risky.

FAQ

FAQ: Covered Call on GameStop

Why are GameStop option premiums so expensive even though the stock is cheap?

Because option prices are driven by implied volatility, not the absolute share price. GameStop's IV is typically 80-180% — the market prices in enormous potential moves. Relative to the low price near $25, premiums are therefore disproportionately high. The low price keeps capital-per-contract small, but every option bought is dearly paid for, and every option sold carries correspondingly high risk. That is the core reason only defined-risk profiles belong here.

What is the biggest risk when trading GameStop options?

Overnight gap risk combined with jumpy IV. GameStop can react to a single social-media post or a capital move with double-digit percentage swings, often outside trading hours — you cannot exit in between. Naked options (especially naked calls) can then theoretically produce unlimited losses. Therefore: never naked positions, always defined-risk profiles (spreads) or cash-secured puts sized so that a total loss is bearable. This is information, not investment advice.

Can you predict a short squeeze with options?

No, not reliably. Squeezes are reflexive, community-driven events without a dependable schedule — trying to time them precisely is speculation, not analysis. What options allow is a defined-risk positioning for a potential breakout (e.g., a bull call spread) with clearly capped stake. The key mistake is "waiting for the squeeze" with expensive naked options — time decay and the IV crush punish patience mercilessly. Small, defined stakes rather than large bets.

How do equity raises affect GameStop options?

GameStop has repeatedly used elevated prices to issue new shares via at-the-market offerings and raise cash. That strengthens the balance sheet but dilutes existing shareholders and often dampens squeeze dynamics — issuing new shares increases supply. For options traders that is a structural headwind for bullish bets and a reason overbought spikes are often sold back quickly. Such announcements can also trigger their own volatility spikes.

Are 0DTE options on GameStop a good idea?

For the vast majority, no. 0DTE options (expiring same day) on GameStop combine already-extreme gamma risk with the highest IV in the market — a small price move can wipe out or multiply the value entirely. That is pure gambling with poor odds for the inexperienced. Anyone trading GameStop at all should use longer tenors and defined-risk spreads to have reaction time and capped risk. This content is informational only and not investment advice.