I have some questions about covered calls. I've never done such a conservative strategy so I am seeking guidance on one scenario: On your very first position (stock + short ATM/OTM calls), what do you do if the stock goes down past the breakeven? Do you stop-out or hold it? The disadvantage to holding is that - although your call will expire worthless and you keep the premium - your stock position will contain shares bought at higher than the current ATM option, messing up your risk profile. So writing the next call would be a problem Example: Buy 100 XYZ at $50, Sell -1 March XYZ 55 Call @ 2 Scenario 1: stock stays at $50 till expiration. collect $2 premium, sell April XYZ 55 Call @ 2 Scenario 2: stock goes to $55 or higher at or before expiration. collect $2 premium, roll up, roll out, roll up and out whatever Scenario 3: stock goes to $45 at or before expiration. collect $2 premium. Rolling down (selling option at 45 strike) will have different margin requirements and risk profile because your stock position is at $50, and the stock could go back up. I always see covered calls advertised as a way to generate income AFTER you've been holding a stock investment for a long time and suddenly realized "oh hey, I can write calls" But on your first position how do you manage this on a stock decline, lets say even a gap down past your breakeven.