Every trader has faced the dilemma of holding a stock below cost basis. Selling means locking in a loss, but holding ties up capital. The covered call is a common solution: sell calls against stock, collect premium, and create income. The downside? Most traders use an all-or-nothing approach, writing calls at a single strike, which often leads to regret.
Regret clouds judgment. Sell too low, and you miss the rally. Sell too high, and the income barely dents costs. The answer lies in the blended strike covered call, a professional approach that spreads call writing across multiple strikes. This creates balance, cushions losses, preserves upside, and reduces regret.
Covered Calls: The Foundation
A covered call means selling options against stock you own. The benefits are clear: consistent income, partial downside cushion, and structured exits. The drawback is capped upside if the stock rallies past your strike. Blended strikes turn this compromise into a strategy by diversifying outcomes across different strike prices.
Why Blended Strikes Work
Instead of selling all contracts at one strike, divide them across levels. Lower strikes provide higher premiums and steady income. Higher strikes leave room for upside. Some shares remain uncovered to capture further gains. This layered approach balances income, opportunity, and peace of mind.
Noshee Khan’s insight:
“Markets move in waves, not straight lines. When you blend your strikes, you blend your outcomes. That’s how you build consistency; you win whether the stock stalls, rallies, or pulls back.”
The DASH Case Study
Assume holding 1,000 shares of DASH at $252.50, with the stock near $247. Using the blended strike method:
- 4 contracts at $255
- 3 contracts at $260
- 3 contracts uncovered
Premiums collected: about $690.
Scenario Outcomes
- Stock stalls at $249: All calls expire worthless, a premium of $690 is secured, and shares are intact.
- Closes at $257.50: $255 calls exercised, partial shares called away, and $1,000 stock profit plus $690 premium, while 600 shares remain. Net gain of about $4,690 (realized and unrealized).
- Rallies to $262: $255 and $260 calls exercised, 700 shares sold, 300 remain. Combined gain: $6,790.
- Pushes to $265: Same structure, with remaining shares adding $3,750 in gains. Total profit: $7,690.
In every case, the structure generates income and preserves flexibility.
Managing Risk
Premiums cushion declines but don’t eliminate risk. Noshee emphasizes protective puts for insurance, trimming shares if support breaks, and viewing premiums as partial defense, not full protection.
The Advantage of Blended Strikes
- Multiple income streams
- Better alignment with market levels
- Reduced regret
- Professional discipline
The Mindset Shift
Blended strikes are more than a trade; they represent discipline, consistency, and confidence. They shift the focus from predicting outcomes to engineering results across multiple scenarios.
Noshee Khan’s insight:
“When you blend your strikes, you blend your emotions too. Fear and greed stop pulling you apart, and you start trading from balance. That’s when you trade like a professional.”
