Covered Call Calculator

A covered call is an options strategy where you own 100 shares of a stock and sell a call option against them. You collect the option premium immediately but cap your upside at the strike price.

The Key Formulas:

Maximum profit = (Strike price − Stock purchase price + Premium received) × 100

Break-even price = Stock purchase price − Premium received

Maximum loss = (Stock purchase price − Premium) × 100 (if stock goes to zero)

Worked Example:

• You own 100 shares of XYZ at $50 per share (cost basis: $5,000)
• You sell 1 call option at $55 strike price for $2.00 premium
• Premium received: $2.00 × 100 = $200 (immediate income)

If stock stays below $55 at expiration:

• Option expires worthless, you keep $200 premium
• Return for the period: $200 / $5,000 = 4%. Over a 30-day option that annualizes to about 48.7%, which is the number to compare against other income ideas. The 4% is what you actually banked.

If stock rises above $55:

• Shares get called away at $55
• Total profit: (55 − 50 + 2) × 100 = $700

If stock falls to $46:

• Break-even: $50 − $2 = $48 (premium cushions losses to $46–$48)
• Loss at $46: (50 − 2 − 46) × 100 = $200 loss (vs $400 without the call)

Options Greeks for Covered Calls:

Practical Tips:

• Sell calls at 30–45 days to expiration to maximize theta decay
• Strike price 5–10% above current stock price (out-of-the-money) balances income and upside
• Avoid selling calls before earnings announcements. Implied volatility spikes there, and buying the call back gets expensive fast
• Most profitable in sideways or slowly rising markets

Writing a call below your cost basis is a different trade. If you paid $50 and sell the $45 strike, the maximum profit is negative unless the premium covers the $5 gap. Assignment locks in a loss. People do it deliberately to exit a position they no longer want, collecting premium on the way out, but it is not an income trade and this page will flag it when the numbers say so.