Covered Call Options Calculator

A covered call is an options strategy where you own shares of stock and sell (write) call options against those shares. You 'cover' the call obligation with your stock holdings. For example, if you own 100 shares of AAPL at $150, you can sell a $155 call and collect premium. If AAPL stays below $155, you keep the premium and your shares. If AAPL goes above $155, your shares get called away at $155, and you keep the premium plus the stock gain from $150 to $155.

Covered call profit has two components: 1) Stock profit/loss = (Exit Price - Purchase Price) × Shares, and 2) Call premium collected. If assigned: Total Profit = (Strike - Purchase Price) × Shares + Premium Collected. If not assigned and you close the position: Profit = (Current Price - Purchase Price) × Shares + Premium - Cost to Buy Back Call. Maximum profit is capped at the strike price plus premium. The calculator also factors in dividends received during the holding period.

Maximum profit = (Strike Price - Purchase Price) × Shares + Premium Collected + Dividends. This occurs when the stock is at or above the strike at expiration and you get assigned. The profit is capped—you don't benefit from stock moves above the strike. Maximum loss occurs if the stock goes to $0: you lose (Purchase Price − Premium − Dividends) × Shares. For example, if you bought at $100, collected $3 premium, max loss is $97 per share if the stock becomes worthless. The premium provides only a small cushion (3% in this case) and doesn't eliminate downside risk. Your breakeven is Purchase Price − Premium − Dividends.

Sell covered calls when: 1) You're neutral to slightly bullish on the stock (okay with capped upside), 2) You want to generate income from stocks you already own, 3) IV is elevated (higher premiums), 4) You'd be happy selling your shares at the strike price, or 5) The stock has been range-bound. Avoid covered calls if you expect a large upward move or if you're strongly bullish—you'll miss out on gains above the strike. Many investors use covered calls on dividend stocks for extra income.

Assignment means you must sell your 100 shares per contract at the strike price. This happens when the stock closes above the strike at expiration (or early if the option is exercised—especially near ex-dividend dates when holders may exercise early to capture the dividend). You keep: 1) The call premium you collected, 2) Any stock appreciation from your purchase price to the strike, and 3) Any dividends received (only if ex-dividend date occurred before assignment). Your shares are sold, and you receive cash. If you want to keep the position, you can 'roll' the call before expiration by buying it back and selling a new call at a higher strike or later date. Note: Early assignment risk increases when the call is deep ITM near an ex-dividend date.

Strike selection depends on your goals: 1) Out-of-the-money (OTM) strikes above current price offer more upside potential but lower premium. Use if you think the stock might rise. 2) At-the-money (ATM) strikes collect maximum premium but cap gains immediately. Use for income focus. 3) In-the-money (ITM) strikes have higher assignment probability and more downside protection. Consider your willingness to sell: only pick strikes you'd be happy selling at. Most traders use 5-10% OTM strikes for a balance of income and upside.

Annualized return extrapolates your covered call return to a full year. Formula: (Return if Assigned / Days to Expiration) × 365. For example, if you make 2% in 30 days, the annualized return is (2% / 30) × 365 = 24.3%. This helps compare covered calls with different time periods. However, note that you can't necessarily repeat the same return every month—market conditions, IV levels, and stock prices change. Annualized return is a theoretical benchmark, not a guaranteed annual yield.

Yes. The call premium provides limited downside protection, but you can still lose money if the stock drops significantly. For example, if you buy stock at $100 and sell a call for $2, your breakeven is $98. If the stock falls to $90, you lose $8/share ($800 per 100 shares) even after keeping the $2 premium. The covered call doesn't protect you from major stock declines—it only reduces your cost basis slightly. Your main risk is the underlying stock declining, just like owning stock without the call.

The wheel strategy combines cash-secured puts and covered calls for consistent income generation. Step 1: Sell cash-secured puts to 'get paid to buy stock.' If assigned, you now own shares at your target price. Step 2: Sell covered calls on those shares to generate income. If assigned, you sell the shares for a profit. Step 3: Repeat—sell puts again to buy back the stock. The wheel works best on high-quality stocks you don't mind owning long-term. It generates income in both directions but requires capital and disciplined execution.

Consider buying back your covered call if: 1) The call loses most of its value (down 80-90%) and you can lock in most of the profit, 2) The stock is rallying and you want to capture upside by closing the call and selling a higher strike (rolling up), 3) Earnings or news is coming and you want to keep unlimited upside, or 4) You want to avoid assignment and keep your shares. Many traders buy back at 50-80% profit to reduce assignment risk and free up capital. Conversely, if the call is deep ITM near expiration, assignment is likely—just let it happen.