Is a covered call low risk?

It carries almost the full downside of the shares, reduced only by the premium, and caps the upside. It changes the shape of returns rather than removing risk: more consistent small gains, the same large losses, and missed rallies.

Why do covered call strategies affect index volatility pricing?

Because they supply calls consistently, market makers accumulate long call positions that they must hedge. That supply tends to cheapen upside implied volatility relative to downside and, under the usual assumptions, adds long gamma to dealer books at the strikes sold.

Covered call (call overwriting)

A covered call sells a call against a long position in the underlying, collecting premium in exchange for giving up gains above the strike. Widespread call overwriting by investors and funds is the usual rationale for assuming, in gamma exposure models, that dealers are net long calls.

Senzoukria · Glossary · Updated September 2026

At a glance

Construction: Long underlying + short call
Maximum gain: Strike − entry price + premium
Downside: Cushioned only by the premium

Worked example

An investor holds shares bought at 100 and sells a 30-day 105 call for 0.64 at 20% implied volatility. If the price ends at or above 105, the shares are called away and the gain is capped at 5.64 per share. If it ends at 100, the investor keeps 0.64. If it falls to 90, the loss is 9.36 instead of 10: the premium only cushions the decline.

Shares at 100 with a 105 call sold for 0.64
Price at expiry	Shares	Short call	Total per share
90	−10.00	+0.64	−9.36
100	0.00	+0.64	+0.64
105	+5.00	+0.64	+5.64
115	+15.00	−9.36	+5.64

A short volatility position on the upside

Selling the call makes the combined position short gamma and short vega on the upside: it earns time decay while the underlying stays below the strike and gives up the gains of a sharp rally. Systematic overwriting strategies and funds that sell index calls every month supply a steady flow of calls to the market, which tends to weigh on call implied volatilities relative to puts.

Why it matters for GEX conventions

If investors are net sellers of calls through overwriting, the dealers buying those calls are long calls, hence long gamma at the call strikes.
This is the usual rationale for counting call open interest as positive dealer gamma, as the most common GEX convention does.
The rationale fails when call open interest comes from speculative buying, as in gamma squeezes: then dealers are short those calls.
Open interest alone cannot distinguish the two situations; flow data with aggressor sides gives partial clues, not proof.

In Senzoukria

Senzoukria's GEX module adds call open interest with a positive sign by default when computing net gamma, which is the arithmetic of the overwriting rationale, and its Calculation assumptions panel lets you flip the convention and see which key levels move. Option Flow's side labels and net premium show whether calls were mostly bought or sold at the ask and bid in the current window, which can contradict the default assumption on a given day.

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Frequently asked questions

Is a covered call low risk?: It carries almost the full downside of the shares, reduced only by the premium, and caps the upside. It changes the shape of returns rather than removing risk: more consistent small gains, the same large losses, and missed rallies.
Why do covered call strategies affect index volatility pricing?: Because they supply calls consistently, market makers accumulate long call positions that they must hedge. That supply tends to cheapen upside implied volatility relative to downside and, under the usual assumptions, adds long gamma to dealer books at the strikes sold.

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