Covered Call Calculator

How to calculate covered call returns

A covered call sells one call for every 100 shares you own. The premium lowers your cost, and in exchange your gain stops at the strike. The stock can still fall all the way to zero, so most of the risk of owning the shares remains.

There are two returns worth comparing: what you earn if the stock stays flat and what you earn if the shares are called away. The annualized figure scales by days to expiration, and it assumes you could repeat the trade all year, which you often cannot.

Break-even = share cost − premium. Max profit = (strike − share cost + premium) × shares. Return if called = max profit ÷ (share cost × shares).

Worked example

You own 100 shares at $185 and sell the $190 call for $3.00, which brings in $300. Your cost falls to $182 a share, which is the new break-even.

If the shares are called away at $190, you make $500 on the stock and $300 of premium, or $800 in total, which is 4.32% on $18,500. If the stock stays at $185, you keep $300, or 1.62%.

What the result does not account for

• Dividends you collect, and the chance of early assignment just before an ex-dividend date.
• Taxes. Assignment is a sale of your shares, which can create a taxable gain.
• Upside you give up above the strike, which is a real cost even though no bill arrives.

Frequently asked questions