Australian investors are always on the hunt for smart ways to turn their share portfolios into steady income streams. Enter the covered call: a time-tested options strategy that’s finding new relevance on the ASX in 2025.
What Is a Covered Call — and Why Are Aussies Talking About It?
A covered call is a strategy where you own shares and then sell (or ‘write’) a call option over those shares. Essentially, you’re giving someone else the right (but not the obligation) to buy your shares at a set price (the ‘strike price’) before a certain date. In exchange, you pocket an upfront premium. If the share price stays below the strike, you keep both your shares and the premium. If it rises above, you sell your shares at the agreed price—still banking the premium.
- Income Focus: Investors use covered calls to earn extra income on top of dividends.
- Popular with SMSFs: The strategy is especially favoured by self-managed super funds seeking yield.
- ASX Growth: More retail investors are trading options on the ASX, with 2024-25 data showing record open interest in covered call ETFs and direct option writing.
How Covered Calls Work: A Simple ASX Example
Imagine you own 1,000 shares of Commonwealth Bank (CBA), currently trading at $120. You write a one-month call option with a $125 strike, earning a $2.00 premium per share (totaling $2,000).
- If CBA stays below $125, the option expires and you keep both the shares and the $2,000.
- If CBA jumps to $130, your shares are ‘called away’ at $125. You still keep the $2,000 premium, plus $5 per share in capital gain.
This is a classic win-win—unless the stock skyrockets well above $125, in which case your upside is capped. The trade-off? You forgo some potential profit in exchange for guaranteed income.
2025 Tax Updates and Regulatory Changes for Covered Calls
The ATO’s latest 2025 guidance clarified how covered call income is treated for Australian taxpayers:
- Premiums: The option premium is assessable as income in the year received.
- CGT Implications: If your shares are ‘called away’, you may trigger a capital gains tax (CGT) event based on the strike price, not the market value at expiry.
- SMSFs: Covered call activity remains permissible for SMSFs, but trustees must document their risk management processes as per the ATO’s revised 2025 fund reporting standards.
Recent ASIC commentary also reminds retail investors to understand the risks and ensure options trading aligns with their overall financial goals.
When Does a Covered Call Make Sense in 2025?
The covered call is not a ‘set-and-forget’ solution. It works best when:
- You have shares you’re willing to sell if the price rises.
- You expect the share price to remain flat or rise only modestly.
- You want to generate regular income but can live with capped upside.
- You’re comfortable with the administrative and tax reporting involved.
In 2025, several new ASX-listed covered call ETFs (such as the Betashares Australian Top 20 Equity Yield Maximiser ETF) have made it even easier for investors to access this strategy without handling options contracts directly.
Risks and Considerations
- Missed Upside: The main risk is opportunity cost—if your shares soar, you’ll have to sell at the strike price and miss out on bigger gains.
- Share Price Drops: You’re still exposed to losses if the underlying stock falls; the premium offers only limited downside protection.
- Complexity: Options contracts and tax reporting can be tricky, especially for DIY investors.
The Bottom Line: Should You Try Covered Calls?
For Australians wanting to generate extra yield from a blue-chip portfolio, covered calls are a practical, increasingly popular approach—especially as more brokers and ETFs offer simple access in 2025. But like all strategies, it pays to know the rules, track the latest tax changes, and make sure the risks fit your goals.
