Covered Call Calculator
Own shares and sell calls against them. See premium income, adjusted cost basis, breakeven, and return on capital.
Own 100 shares and sell a call against them. Collect premium income while capping your upside at the strike price. The most popular income strategy for stock holders.
How to Calculate Covered Call Returns
A covered call means you own 100 shares of stock and sell a call option against them. You collect the call premium as income, which reduces your cost basis and provides a cushion against small declines. The tradeoff: if the stock rises above the call's strike price, your shares get called away and you miss the extra upside.
This is the most popular options income strategy for investors who already hold stock. It turns an idle position into a monthly income generator. Many covered call writers target 1-3% per month in premium income, which compounds to 12-36% annually on top of any stock appreciation.
The calculator shows your premium income, adjusted cost basis after the premium, breakeven price, max profit (capped at the strike), and return on capital. The P&L chart shows how your covered call outperforms plain stock ownership below the strike but underperforms above it.
Formula
Premium Income = Call Premium × Contracts × 100. Adjusted Cost Basis = (Share Price × Shares) − Premium. Breakeven = Adjusted Cost Basis ÷ Shares. Max Profit = (Strike − Share Price) × Shares + Premium.
Example
You own 100 shares of AAPL at $185. You sell the $190 call for $3.00 expiring in 30 days.
Premium received: $3.00 × 100 = $300. Adjusted cost basis: ($185 × 100) − $300 = $18,200 → $182 per share. Breakeven drops from $185 to $182. Max profit: ($190 − $185) × 100 + $300 = $800. If AAPL stays below $190, you keep the $300 premium and still own the shares. If it's above $190, your shares are called away at $190 and you make $800 total.
Frequently Asked Questions
What strike price should I sell for a covered call?
Most covered call writers sell OTM calls 5-10% above the current price. This gives the stock room to appreciate while collecting premium. If you're willing to have your shares called away, sell closer to ATM for higher premium. If you want to keep your shares, sell further OTM — less premium but lower assignment probability.
What happens when my covered call gets assigned?
Your shares are sold at the strike price. You keep the premium. Your total proceeds are (Strike Price × 100) + Premium Received. If your share purchase price was below the strike, you profit on both the shares and the premium. Most brokers handle assignment automatically overnight.
Can I write covered calls on dividend stocks?
Yes, and it's a common strategy. Be aware of early assignment risk before ex-dividend dates — if the call is ITM and the dividend exceeds the remaining time value, the call buyer may exercise early to capture the dividend. To avoid this, sell calls with enough time value to exceed the dividend amount.
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Disclaimer: This calculator is for educational purposes only and does not constitute financial advice. Trading involves substantial risk of loss. Past performance does not guarantee future results. Always do your own research and consult with a licensed financial advisor before making investment decisions.