Capped-Upside Risk
Opportunity cost created by the short call above strike.
#Risk mechanism
Above the strike, additional gains in the long leg are offset by the short-call obligation. The covered call can remain profitable while materially underperforming an uncapped Stock Token position.
#Stress conditions
- Sharp rally after entry.
- Low strike relative to spot.
- Long option term.
- Expensive or illiquid early close.
#Control principles
- Display the cap and holding comparison on the same payoff chart.
- Quote the relative crossover K + P.
- Stress-test large rallies, not only downside.
- Treat a roll as a new transaction with its own cost.