Remember the aim here is genearating an income so you don't have to sell a large part of capital to fund your lifestyle. Yes you may have to deliver your coins if contract gets exercised, but you then have the option to buy back in (maybe at a higher price, or may it dips and you get a lower price) and repeat the process. You may have slightly less BTC, but you can still sell calls on that. If you are concerned about being exercised, go for higher strike prices.

There is counterparty risk with the exchanges, but in 2021 there is fair less risk then back several years ago. One way to reduce this risk is by not keeping a full BTC on exchange when selling the contract, you can keep half or less than half, but that does open you up to margin call risk. Cold storage is definitely best, I'm just saying this is an alternative, other then selling, for people who now have enough net worth in BTC.