Calculator · Options

Covered call calculator

Enter your shares, what you paid, the strike, the premium and the days to expiration. The covered call calculator returns the premium income, the new breakeven, the most the trade can make if the shares are called away, and what you give up if the stock runs past the strike.

Your numbers

One contract covers 100 shares.

Premium income

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Breakeven

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Max profit if called

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Return if called

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Annualized

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Upside given up

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The working

    What the premium buys and what it costs

    Selling a call on shares you own pays the premium now. In exchange you agree to sell the shares at the strike if the buyer wants them. At $0.90 on 100 shares that is $90. The premium lowers your breakeven, so shares bought at $50 lose money at expiration only below $49.10. The cost is the upside past the strike: if the stock finishes at $60 against a $55 strike, your shares go at $55, and the $5 a share above it, $500 in all, belongs to whoever bought the call.

    Return if called, and the annualized figure

    At or above the strike at expiration, the position earns the strike minus your cost basis, plus the premium, plus any dividend received while the call was open. Divide that by what the shares cost and you have the return if called. On the defaults it is $590 on $5,000, or 11.8%. The annualized figure multiplies it by 365 over the days to expiration. It assumes you could repeat the same trade on the same terms all year, which almost never happens. Treat it as a ruler for comparing two strikes or two expirations side by side.

    Assumptions that drive the answer

    Every figure is at expiration. Before then, the call trades on time value and volatility, and buying it back early can cost more or less than you collected. A call can be assigned early, most often the day before an ex-dividend date, which is how a dividend you counted on can end up with the call buyer. Covered call, defined walks through the payoff. Option delta gives a rough read on how likely the strike is to be reached. Covered calls on dividend stocks and the wheel strategy set out when the trade is worth making.

    Questions about this calculator

    What happens if the stock drops a lot?

    You keep the premium and still own the shares, so the loss at expiration is the drop in the share price minus the premium collected. Selling the call does nothing to protect you below the breakeven. On a sharp fall, a covered call loses almost as much as holding the shares alone.

    Can I get assigned before expiration?

    Yes. Options on US stocks are generally American style, so the holder can exercise on any trading day before expiration. It happens most often when the call is deep in the money with little time value left, and on the day before an ex-dividend date when the dividend is larger than the remaining time value. Your broker tells you after the assignment.

    Is the annualized return realistic?

    It is arithmetic, a way to put a 30-day trade and a 90-day trade on the same scale. It assumes the same premium, the same outcome and no losing cycles for a full year. Use it to compare strikes and expirations. The return you actually earn depends on what the stock does between one cycle and the next.

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