How to use the covered call calculator
- Enter the current stock price and the implied volatility of the option you plan to sell.
- In the Legs table, set the Stock row "Strike" to the price you paid for your shares.
- Set the call strike and type the real premium (bid price) your broker shows.
- Read the results: return if called, return if unchanged and the downside cushion, plus the annualized versions.
What a covered call is
You own 100 shares and sell one call option on them. The buyer pays you a premium today in exchange for the right to buy your shares at the strike price until expiration. You keep the premium no matter what happens. In return, you give up any gain above the strike.
The three numbers that matter
- Return if called: (premium + strike − purchase price) ÷ purchase price. This is the best case: the stock finishes above the strike and your shares are sold.
- Return if unchanged: premium ÷ purchase price. What you earn if the stock doesn't move.
- Downside cushion: premium ÷ purchase price. How far the stock can fall before you lose money compared with not selling the call.
Annualizing (return × 365 ÷ days) lets you compare a 7-day call with a 45-day call on equal terms.
Choosing the strike
A strike close to the current price pays more premium but is more likely to be exercised. A higher strike pays less but leaves room for the stock to rise. Delta is a quick guide: a call with a delta of 0.30 has roughly a 30% chance of finishing in the money. Try several strikes in the calculator and compare the annualized returns with the probability of profit.
Risks
A covered call does not protect you from a large drop in the stock. The premium only cushions part of it. You can also be assigned early, especially right before an ex-dividend date when the call is in the money.
Frequently asked questions
Is a covered call profitable if the stock goes down?
Only partly. The premium offsets a small decline. If the stock falls more than the premium, the position loses money, though less than owning the shares alone.
What happens if my covered call is assigned?
Your 100 shares are sold at the strike price. You keep the premium plus any gain from your purchase price up to the strike.
What is a good annualized return for covered calls?
It depends on volatility and the stock. Many investors look for 10% to 20% annualized on large, stable stocks; higher yields usually come with higher risk.
Can I roll a covered call?
Yes. Rolling means buying back the current call and selling a new one with a later expiration and/or different strike. Model the new call here to compare outcomes.
For educational purposes only. Not financial advice. Options involve risk and are not suitable for all investors.