Covered Call Calculator

Stock + OptionneutralUndefined Risk

Sell calls against stock you own to generate income and reduce cost basis.

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What Is a Covered Call?

A covered call combines 100 shares of long stock with one short call on the same underlying. You already own the shares, so the call you sell is covered: if it is exercised, you deliver stock you hold rather than buying it at market. The premium collected is yours to keep regardless of what happens, which lowers your effective cost basis on the shares and produces income while you wait.

The short call caps your upside at the strike price. Above the strike, every dollar the stock gains is offset by a dollar lost on the call, so the position stops appreciating. Below the strike, you simply own stock that is worth a little more than it would be otherwise because of the premium. Time decay works for you, since the call loses extrinsic value every day the stock stays under the strike.

The payoff diagram looks like long stock with the top sliced off. It rises one for one with the share price up to the strike, then goes flat. The downside is the full risk of owning the stock minus the premium received, so a covered call is a mildly bullish to neutral position, not a hedge. It is often the first options strategy investors learn because the worst case is the same as holding shares, only slightly better.

Setup

long100 shares of the underlying

SELL1x OTM1 CALL

Max Profit

Strike - stock price + premium received

Max Loss

Stock price - premium received (stock falls to $0)

Breakeven

Stock purchase price - premium received

Covered Call Example

You own 100 shares of XYZ bought at $100, and the stock trades at $100 with 30 days to expiration. You sell one $105 call for $2.50, collecting $250. The position has no additional cost beyond the shares you already hold, and the $250 credit is banked immediately.

Stock at expiration	Result
$110	The call is exercised and your shares are sold at $105. Stock gain is $500, plus the $250 credit, for a total of $750, the maximum profit. You forgo the extra $500 the shares gained above $105.
$100 (unchanged)	The call expires worthless. The shares are flat, so your profit is the $250 premium. Your cost basis is now effectively $97.50.
$97.50	Breakeven. The shares have lost $250, exactly offset by the $250 credit. P&L is $0.
$90	The call expires worthless. The shares have lost $1,000, cushioned by the $250 credit, for a net loss of $750.

Maximum profit is $750 (the $5 gap between $100 and the $105 strike plus the $2.50 premium, times 100) if XYZ finishes at or above $105. Breakeven is $97.50. Maximum loss is $9,750 if the stock goes to zero, which is the full share risk minus the premium.

When to Use a Covered Call

You hold shares you are happy to keep but expect them to trade flat or rise only modestly over the next one to two months.
You would be content selling the shares at the strike price, so being called away is an acceptable outcome rather than a disappointment.
Implied volatility is elevated, making call premiums rich relative to the stock's likely move.
You want to generate income from a long-term holding without adding capital or margin.
Typical entries use 30 to 45 days to expiration and a strike around the 20 to 30 delta, which balances premium against the probability of assignment.

Risks to Understand

The downside is nearly the same as owning stock outright. A 20 percent drop in the shares wipes out many months of call premium.
Upside is capped. If the stock rallies sharply on news or earnings, you sell at the strike and miss the rest of the move, which can be far larger than the premium collected.
Early assignment is possible when the call is in the money ahead of an ex-dividend date, because the call holder may exercise to capture the dividend.
Selling calls against a stock you are emotionally attached to often leads to buying back the call at a loss to avoid assignment, which turns an income strategy into a losing trade.
In a taxable account, being called away triggers a sale of the shares, which can create an unwanted capital gains event and may reset the holding period.

Managing the Trade

Many traders close the call once it has lost 50 to 80 percent of its value, then sell a new one further out in time to keep the income stream going.
If the stock approaches the strike and you want to keep the shares, roll the call up and out: buy back the current call and sell a higher strike in a later expiration, ideally for a net credit.
If the stock drops well below the strike, the call is nearly worthless and can be bought back cheaply, freeing you to sell a lower strike for more premium.
Avoid selling calls across earnings unless you are willing to be assigned, because the stock can gap through the strike overnight.
Let the call expire or be assigned if the stock finishes above the strike and you are happy with the sale price. Fighting assignment usually costs more than it saves.

Covered Call FAQs

How do you calculate covered call max profit and breakeven?: Maximum profit is the strike price minus your stock purchase price plus the premium received, multiplied by 100. Breakeven is your stock purchase price minus the premium. If you bought shares at $100 and sold a $105 call for $2.50, max profit is $750 and breakeven is $97.50.
Is a covered call risky?: A covered call is less risky than holding the stock alone, because the premium provides a small cushion against declines. It is still a bullish stock position, though, and you carry nearly the full downside of the shares. The main cost is opportunity cost if the stock rallies well past the strike.
What happens if my covered call gets assigned?: Your 100 shares are sold at the strike price and the cash lands in your account, usually over the weekend after expiration or the day after an early exercise. You keep the premium as well. The result is the maximum profit on the trade, and you no longer own the shares.
What is the wheel strategy?: The wheel alternates between cash-secured puts and covered calls. You sell puts until you are assigned shares, then sell covered calls on those shares until they are called away, and repeat. Each step collects premium, so the goal is to lower your cost basis over time while owning stocks you would hold anyway.
Can you lose money on a covered call?: Yes. If the stock falls by more than the premium received, the position loses money. With shares bought at $100 and a $2.50 credit, any close below $97.50 at expiration is a loss. The call only offsets the first $2.50 of the decline.
What strike should I sell for a covered call?: A common approach is a strike 3 to 7 percent above the current price with around 30 days to expiration, roughly the 20 to 30 delta. Closer strikes collect more premium but are more likely to be assigned. Further strikes keep more upside but pay very little.

Related Strategies

Cash-Secured Put Collar Poor Man's Covered Call (PMCC)

What Is a Covered Call?

Covered Call Example

Stock at expiration	Result
$110	The call is exercised and your shares are sold at $105. Stock gain is $500, plus the $250 credit, for a total of $750, the maximum profit. You forgo the extra $500 the shares gained above $105.
$100 (unchanged)	The call expires worthless. The shares are flat, so your profit is the $250 premium. Your cost basis is now effectively $97.50.
$97.50	Breakeven. The shares have lost $250, exactly offset by the $250 credit. P&L is $0.
$90	The call expires worthless. The shares have lost $1,000, cushioned by the $250 credit, for a net loss of $750.

When to Use a Covered Call

You hold shares you are happy to keep but expect them to trade flat or rise only modestly over the next one to two months.

You would be content selling the shares at the strike price, so being called away is an acceptable outcome rather than a disappointment.

Implied volatility is elevated, making call premiums rich relative to the stock's likely move.

You want to generate income from a long-term holding without adding capital or margin.

Typical entries use 30 to 45 days to expiration and a strike around the 20 to 30 delta, which balances premium against the probability of assignment.

Risks to Understand

The downside is nearly the same as owning stock outright. A 20 percent drop in the shares wipes out many months of call premium.

Upside is capped. If the stock rallies sharply on news or earnings, you sell at the strike and miss the rest of the move, which can be far larger than the premium collected.

Early assignment is possible when the call is in the money ahead of an ex-dividend date, because the call holder may exercise to capture the dividend.

Selling calls against a stock you are emotionally attached to often leads to buying back the call at a loss to avoid assignment, which turns an income strategy into a losing trade.

In a taxable account, being called away triggers a sale of the shares, which can create an unwanted capital gains event and may reset the holding period.

Managing the Trade

Many traders close the call once it has lost 50 to 80 percent of its value, then sell a new one further out in time to keep the income stream going.

If the stock approaches the strike and you want to keep the shares, roll the call up and out: buy back the current call and sell a higher strike in a later expiration, ideally for a net credit.

If the stock drops well below the strike, the call is nearly worthless and can be bought back cheaply, freeing you to sell a lower strike for more premium.

Avoid selling calls across earnings unless you are willing to be assigned, because the stock can gap through the strike overnight.

Let the call expire or be assigned if the stock finishes above the strike and you are happy with the sale price. Fighting assignment usually costs more than it saves.

Covered Call FAQs

How do you calculate covered call max profit and breakeven?

Maximum profit is the strike price minus your stock purchase price plus the premium received, multiplied by 100. Breakeven is your stock purchase price minus the premium. If you bought shares at $100 and sold a $105 call for $2.50, max profit is $750 and breakeven is $97.50.

Is a covered call risky?

A covered call is less risky than holding the stock alone, because the premium provides a small cushion against declines. It is still a bullish stock position, though, and you carry nearly the full downside of the shares. The main cost is opportunity cost if the stock rallies well past the strike.

What happens if my covered call gets assigned?

Your 100 shares are sold at the strike price and the cash lands in your account, usually over the weekend after expiration or the day after an early exercise. You keep the premium as well. The result is the maximum profit on the trade, and you no longer own the shares.

What is the wheel strategy?

The wheel alternates between cash-secured puts and covered calls. You sell puts until you are assigned shares, then sell covered calls on those shares until they are called away, and repeat. Each step collects premium, so the goal is to lower your cost basis over time while owning stocks you would hold anyway.

Can you lose money on a covered call?

Yes. If the stock falls by more than the premium received, the position loses money. With shares bought at $100 and a $2.50 credit, any close below $97.50 at expiration is a loss. The call only offsets the first $2.50 of the decline.

What strike should I sell for a covered call?

A common approach is a strike 3 to 7 percent above the current price with around 30 days to expiration, roughly the 20 to 30 delta. Closer strikes collect more premium but are more likely to be assigned. Further strikes keep more upside but pay very little.