Option Tracker
Trading
5 min read

Covered Calls

Generate income by selling covered calls against your stock positions.

Covered calls are a popular income-generating strategy where you sell call options against stock you already own. Option Tracker makes it easy to track these trades and link them to your underlying positions.

What is a Covered Call?

A covered call involves:

  1. Owning stock (at least 100 shares per contract)
  2. Selling a call option at a strike price above current price
  3. Collecting premium as immediate income
  4. Obligation to sell if the stock reaches the strike price

Why Sell Covered Calls?

  • Generate income on stocks you already own
  • Lower cost basis of your position
  • Define an exit price you're happy to sell at
  • Profit in flat markets when the stock doesn't move much

Selling a Covered Call

From the Stocks page, find the position you want to write a call against.

Step 1: Open the Action Menu

Click the three-dot menu on your stock position.

Stock Position Menu

Step 2: Select "Sell Covered Call"

This opens the covered call form pre-filled with your position details.

Sell Covered Call Form

Step 3: Enter Call Details

  1. Strike Price - The price at which you agree to sell your shares

    • Choose above current price for best results
    • Higher strike = less premium but less likely to be called

  2. Expiration Date - When the option expires

    • 30-45 days is common (optimal time decay)
    • Weekly options for more frequent income

  3. Premium Per Share - What you receive per share

    • System calculates total: Premium × Contracts × 100

  4. Fees (Optional) - Broker commissions

  5. Notes (Optional) - Strategy notes, target profit, etc.

Step 4: Review Summary

The Covered Call Summary shows:

  • Stock being covered (ticker and shares)
  • Number of contracts (shares ÷ 100)
  • Your cost basis for reference
  • Total premium you'll receive

Step 5: Create the Call

Click "Create Covered Call" to record the trade.

Understanding the Numbers

Maximum Contracts

You can sell 1 call contract per 100 shares owned:

| Shares Owned | Max Contracts | |--------------|---------------| | 100 | 1 | | 200 | 2 | | 500 | 5 | | 1000 | 10 |

Premium Calculation

Total Premium = Premium per Share × Contracts × 100

Example:

  • Own 300 shares of AAPL
  • Sell 3 calls at $2.50 premium
  • Total premium: $2.50 × 3 × 100 = $750

Break-Even with Covered Call

Break-Even = Cost Basis - Premium Received per Share

Example:

  • Cost basis: $150/share
  • Received: $2.50 premium
  • New break-even: $147.50/share

Managing Covered Calls

Once created, covered calls appear in your Trades list linked to the stock position.

Possible Outcomes

  1. Expires Worthless (Stock below strike)

    • Keep all premium
    • Keep your shares
    • Can sell another call

  2. Called Away (Stock above strike at expiration)

    • Shares sold at strike price
    • Keep the premium
    • Stock position closed

  3. Buy to Close (Close early)

    • Pay to close the position
    • Keep shares
    • Realize partial profit/loss

Tracking Linked Positions

Option Tracker links covered calls to their underlying stock:

  • View covered call status from stock position
  • See combined P&L (stock + call premium)
  • Track multiple rounds of covered calls

Covered Call Strategies

Conservative (Deep Out-of-the-Money)

  • Strike 10-15% above current price
  • Lower premium, lower chance of assignment
  • Best when you want to keep shares long-term

Moderate (Slightly Out-of-the-Money)

  • Strike 3-5% above current price
  • Balanced premium and assignment risk
  • Common for income investors

Aggressive (At-the-Money)

  • Strike near current price
  • Higher premium, higher assignment risk
  • Best when willing to sell at current prices

Rolling Covered Calls

When a call is about to be assigned but you want to keep shares:

  1. Buy to close the current call
  2. Sell to open a new call at:
    • Same or higher strike
    • Later expiration
  3. Ideally collect net credit

This is called "rolling up and out."

AI Assistant for Covered Calls

The stocks page AI can help with:

  • Strike selection - Optimal strikes for your risk tolerance
  • Premium analysis - Expected returns at different strikes
  • Roll timing - When to roll vs. take assignment

Best Practices

  1. Only sell calls on stock you'd sell - Be comfortable with assignment

  2. Start with 30-45 DTE - Optimal time decay (theta)

  3. Target 1-2% monthly - Reasonable income expectation

  4. Watch earnings - Avoid selling calls through earnings if bullish

  5. Have an exit plan - Know when you'll roll or take assignment

  6. Track your cost basis - Premium lowers your effective cost

Example: Complete Wheel Cycle

Here's how covered calls fit into the wheel strategy:

  1. Sell Cash-Secured Put ($150 strike, $3 premium)

    • Stock at $155, put expires worthless
    • Profit: $300 (kept premium)

  2. Sell Another Put ($150 strike, $2.50 premium)

    • Stock drops to $148, assigned at $150
    • Cost basis: $150 - $2.50 = $147.50

  3. Sell Covered Call ($155 strike, $2 premium)

    • Stock rises to $156, called away
    • Profit: ($155 - $147.50) × 100 + $200 = $950

Total profit from cycle: $300 + $950 = $1,250

Next Steps

  • Analyze your covered call performance in Analytics
  • Review your Settings for notifications
  • Learn more strategies in our Blog