IV↗TRADINGRESEARCH WORKBENCHSource ↗

01 / VOLATILITY & PAYOFFS

Price an expectation.
Inspect the tradeoff.

Back out volatility from a call premium, compare it with realized returns, and see exactly what a covered call gives up.

Implied volatility—Annualized · from option premium
Historical volatility—Sample SD of log returns × √252
IV minus historical—Percentage points · not expected profit

Scenario inputs

Inspect / replace closing prices

Oldest first, one positive closing price per line. Include at least window + 1 observations. Missing trading days are not inferred.

Synthetic example path. No historical performance claim.

02 / EXPIRATION P&L

A premium. A ceiling. Stock downside.

Covered callStock alone

Terminal stock price ($) · P&L in dollars, including entered fees, excluding dividends and financing.

Break-even stock price—
Maximum gain—
Loss if stock reaches $0—

Call sensitivities at implied volatility

Greeks describe a small change under the pricing model. Delta is not a calibrated probability; vega is per 1 percentage point, theta per calendar day.

03 / THE MODEL BOUNDARY

IV and historical volatility
answer different questions.

Implied volatility is the Black–Scholes parameter that matches the entered premium. Historical volatility is the sample standard deviation of daily log returns, annualized using 252 trading days. A gap does not guarantee convergence or a profitable trade.

This European model assumes constant volatility and continuous dividends. American exercise, discrete dividends, spreads, assignment timing, changing volatility and taxes are outside it. The covered-call diagram is a terminal payoff, not a backtest.

Covered-call mechanics · Options Industry Council ↗