Covered Calls as a Hedge Against Losses

     Covered calls can be sold at a lower price than the current trading price of the stock; this will allow the buyer to not lose capital if the stock price drops. For example, Nokia (NOK) is trading at 36.29 today. A covered call at 35 can be sold for $1.75 per share for a 100 shares. This not only gives the owner a $50 premium, it also gives the trader protection if the price drops below 36.29. Basically, the owner is protected from loss from 36.29 down to 35. 
     Selling a covered call at a lower price offers protection in that security
up to the lower price.  The disadvantage occurs if the price of the stock goes up, since the owner loses any chance of gains beyond his entry point.