Have you ever watched a stock you own go up 10x and thought, “Man, I wish I could lock in some of that gain without actually selling and triggering a massive tax bill?”
I have. Plenty of times. And right now, with Nvidia sitting near all-time highs after one of the most insane runs in market history, that feeling is practically universal among long-term holders.
The good news? There’s a perfectly legal, time-tested way to generate extra cash flow from those shares while still participating in further upside (limited upside, sure, but upside nonetheless). It’s called selling covered calls, and it’s suddenly looking very attractive on names like Nvidia.
Why the Biggest Winners Eventually Slow Down
Let’s start with something that sounds almost cruel to say out loud: Nvidia’s growth rate is mathematically guaranteed to slow dramatically from here.
Not because management will suddenly become incompetent. Not because AI isn’t real. But because of something much simpler: the law of large numbers.
When a company is worth $50 billion, tripling revenue is hard but doable. When it’s worth $3.5 trillion, tripling revenue would mean adding another $3+ trillion in sales. That’s roughly the size of Germany’s entire economy. Good luck.
History is brutally consistent on this point. Look back at any decade and you’ll find yesterday’s Nvidia — and then watch how few of them stayed on top forever.
Polaroid. Kodak. Cisco in 2000. GE. Exxon. Even Intel during the PC boom. They all dominated their era, delivered life-changing returns, and then… eventually became just “big companies” instead of “growth monsters.”
The market doesn’t hate them. It just moves on to the next outlier.
The Power-Law Reality Most Investors Ignore
Here’s a stat that still blows my mind every time I think about it: according to research covering more than 90 years of U.S. stock data, roughly 4% of stocks have generated virtually all of the market’s net wealth creation above T-bills.
The other 96%? Collectively, they’ve basically matched risk-free returns. The median stock has been a terrible long-term investment.
This isn’t a bug. It’s the feature of equity returns. Unlimited upside + limited downside = extreme right-tail outcomes.
And cap-weighted indexes like the S&P 500 are literally designed to ride those winners automatically. As a stock gets bigger, its weight grows. No committee meeting required.
Equal-weight indexes, by contrast, do the exact opposite: they sell winners to buy losers every quarter. Since 1992 the equal-weight S&P has returned about 2,500%. The regular cap-weighted version? Over 3,000%. That’s the power of letting winners run.
So Why Not Just Buy and Hold an Index Forever?
You absolutely can. For most people it’s still the single best strategy ever invented.
But if you happen to own a concentrated position in one of those rare 4% stocks — and especially if those gains are sitting in a taxable account — blindly holding forever starts to feel a little different.
You begin asking yourself questions like:
- What if this really is “peak Nvidia”?
- How do I diversify without paying 30-40% in taxes?
- Can I generate some actual spendable income from this position?
That’s where covered calls enter the chat.
How Covered Calls, Explained Like We’re Having Coffee
Imagine you own 100 shares of Nvidia at $140 (split-adjusted price as of late 2025).
You look at January 2026 expiration (roughly 45 days out) and see the $195 call trading around $5.65.
You sell one of those calls against your shares. Instantly $565 hits your account (100 × $5.65, minus commission).
What did you just agree to?
- If Nvidia stays below $195 by January expiration, the call expires worthless. You keep the $565 and your shares. You can do it again next month.
- If Nvidia rockets past $195, your shares get called away at $195. Your effective sell price becomes $200.65 ($195 strike + $5.65 premium). That’s still ~43% above today’s price in 45 days.
- Either way, you just created a 4% return in a month and change (>$30% annualized) on a stock that most people are happy to see go up 15% in a whole year.
That, my friends, is the magic of selling premium on names the market is obsessed with.
“The stock market is a device for transferring money from the impatient to the patient.”
– Warren Buffett (but he’d probably hate options, so let’s keep this between us)
Why Nvidia is Perfect Covered-Call Candy Right Now
Three reasons:
- Insanely high implied volatility. The options market is still pricing in huge moves because everyone is terrified of missing the next leg up. High IV = fat premiums.
- Everyone is long. When sentiment is lopsided, option sellers usually win over time.
- Clear resistance levels. Round numbers like $150, $175, $200 act like magnets. Selling calls a few strikes above current price dramatically increases the probability of keeping the premium.
In practice, many experienced income investors are rolling 30-60 day covered calls on Nvidia and pulling in 2-5% per month fairly consistently — all while still owning the stock.
The Risks (Because Nothing is Free)
Let’s not sugarcoat it. Covered calls come with trade-offs.
- Opportunity cost. If Nvidia does another 2023-style moonshot and doubles from here, you miss everything above your strike. That hurts psychologically, even if you still made great money.
- Downside is still there. The premium cushions the fall, but only by the amount you collected. If NVDA drops 30%, you’re still down ~26-28% instead of 30%. Helpful, but not life-changing.
- Tax complexity. In taxable accounts, frequent call writing can create wash-sale headaches if you buy the calls back or roll them.
But for someone sitting on 5-10x gains who isn’t in a hurry to sell, those risks often feel very acceptable compared to doing nothing.
Practical Ways to Get Started
If you’re new to this, start small. Maybe 10-20% of your Nvidia position. See how it feels to collect premium and watch expiration Friday.
Common approaches I see working well:
- Monthly rolls – Sell 30-45-day calls, let them expire or roll out and up if challenged.
- Delta targeting – Sell calls with roughly 20-30 delta (70-80% chance of expiring worthless).
- Buy a protective put – Turn it into a collar if you want defined-risk (costs some of your premium though).
Over time many investors graduate to selling calls on 50-70% of their shares and leaving the rest “naked long” for unlimited upside. Best of both worlds.
Final Thought: You Don’t Have to Predict the Future
The beauty of covered calls is you don’t need to guess whether Nvidia has topped or still has another double left.
You’re simply renting out your shares to nervous buyers who are willing to pay you handsomely for the privilege of betting on a moonshot.
If they’re wrong, you keep the rent and the house.
If they’re right, you still get paid rent and sell at a price most people would have killed for a year ago.
In a market where the biggest winners eventually become “just” great companies, that feels like a pretty reasonable deal.
Stay greedy, but stay smart.
