I Made $18,000 in ‘Free Money’ Selling Call Options on 200 Tesla Shares: Here’s How the Strategy Works

On a recent episode of the Rich Habits Podcast titled “169: Our Favorite Passive Income Strategy (2026),” co-host Austin Hankwitz called covered calls “one of the simplest options strategies in investing” and “the freest money that exists.” His receipt: “In 2024, 2025, I’ve made north of $18,000 in premium income on my 200-ish shares of Tesla stock.”

Here is how the trade works, using his Tesla example.

The Mechanics, In Plain English

You own at least 100 shares of Tesla (NASDAQ:TSLA | TSLA Price Prediction). Hankwitz used a purchase price of $220 per share. Through your brokerage, you sell someone the right to buy those 100 shares at a higher strike, say $250, by a set expiration date. The buyer pays you a cash premium up front, say $500. The call is “covered” because you already own the shares backing it. One contract equals 100 shares, so 200 Tesla shares means two contracts.

Three things can happen by expiration:

• Tesla finishes below $250. The contract expires worthless. You keep the shares and the $500. Next month, you write another one.
• Tesla finishes right at $250. Same outcome. You keep the shares and the premium.
• Tesla rockets past $250 to $300. You are obligated to sell at $250, giving up $50 per share of upside. You still bank $30 per share in capital gain plus the $500 premium.

Co-host Robert Croak framed the bargain directly: “You’re trading some of your upside potential for guaranteed income today.” When the stock stays below the strike, he added, you “do it again and again and again.”

The Mathematical Boundaries of a Covered Call

To successfully navigate this strategy, option writers must weigh explicit downside protection against capped gains using a structured risk-reward framework. The contract’s risk profile can be mapped out using standard options math where maximum profit is calculated as (Strike Price – Purchase Price) + Premium Received, and the downside break-even point equals the Purchase Price – Premium Received. Using Hankwitz’s specific baseline numbers ($220 purchase price, $250 strike, and an assumed $5.00 per share premium), the absolute profit ceiling is capped at $35.00 per share ($3,500 total per contract). Conversely, the upfront premium lowers the position’s net cost basis, establishing a hard downside break-even threshold at $215.00 per share.

Why Tesla Specifically

Tesla is a favorite for covered-call writers because option premiums scale with volatility, and Tesla has plenty. The stock carries a beta of 1.793 and has traded in a 52-week range of $273.21 to $498.83. Shares closed at $443.30 on May 14, 2026, up 21.72% in the past month. That kind of move is exactly what call writers fear (capped upside) and love (fat premiums) simultaneously.

Tesla pays no dividend, so long-term holders extract regular cash by selling premium against the position. Tesla’s Q1 FY2026 results (filed in an 8-K with the SEC on April 22, 2026) showed revenue of $22.39B and free cash flow of $1.44B, with 2026 catalysts including Cybercab, the Tesla Semi, Megapack 3, and an Optimus ramp at Fremont. Each is a reason a covered call could get blown through to the upside.

Timing Earnings Volatility and Managing Tax Drag

Advanced options traders frequently timing their contract writing around quarterly corporate earnings to capitalize on a phenomenon known as implied volatility (IV) crush. Because Tesla’s implied volatility spikes sharply right before its financial disclosures—such as the Q1 FY2026 report on April 22—the option premiums become significantly inflated. Writers can capture maximum premium right before the announcement and buy the contract back at a steep discount immediately after the release as volatility collapses, even if the stock price remains flat.

However, writers must also account for the structural tax drag associated with regular premium generation. Unlike long-term buy-and-hold strategies, capital gains derived from short-term option premiums are generally treated as ordinary income by the IRS and taxed at higher short-term rates. To mitigate this tax burden, investors frequently execute these trades within tax-advantaged wrappers like a Roth IRA or utilize specialized premium ETFs that leverage section 1256 contracts for more favorable tax treatment.

The Trade-Off, And The ETF Shortcut

The risk Hankwitz glossed over is opportunity cost. If Tesla runs from $220 to $400 in a single cycle, the covered-call writer caps out at the strike. Investors who do not want to manage contracts themselves now have covered-call ETFs that run the strategy on individual names and broad indexes. The premium income is real. So is the ceiling you agree to in exchange for it.

Editor’s Note: This article has been updated to include a formal mathematical risk-reward breakdown of the baseline Tesla trade alongside new sections detailing the mechanics of implied volatility crush around corporate earnings reports and the short-term ordinary income tax implications of selling option contracts.