Covered Call Calculator

A covered call is one of the most common income strategies in options trading: you own (or buy) 100 shares of stock per contract, then sell a call option against those shares. You collect the option premium up front, and in exchange you agree to sell your shares at the strike price if the stock closes above it at expiration.

The strategy has two outcomes worth knowing before you place it: what you make if the stock gets called away, and what you make if it doesn't, since they can differ substantially. This calculator shows both, along with your breakeven and annualized yield.

How does this calculator work?

Enter your cost basis and the stock's current price, the strike price of the call you're selling, the premium you'd collect, and how many days until expiration.

The calculator shows your breakeven (cost basis minus premium collected), your return if the stock is called away at the strike, and your return if the stock is unchanged and the call expires worthless, each annualized so you can compare trades of different lengths on equal footing.

The chart shows your total position profit/loss (stock plus the short call) across a range of stock prices at expiration, so you can see exactly where the call caps your upside.

Worked example

You own 100 shares at a $50 cost basis, and sell a 30-day call at the $55 strike for $1.50 in premium.

Breakeven

$48.50

Downside protection

3.00%

If called away: profit / return

$650 / 13.00%

If unchanged: profit / return

$150 / 3.00%

Annualized yield (if unchanged)

36.50%

How the numbers work

If the stock finishes at or above $55, your shares get called away: you make the $5 per share gain to the strike, plus the $1.50 premium. That's $6.50/share, or $650 on 100 shares, a 13% return on your $5,000 cost basis over 30 days.

If the stock finishes below $55 (including exactly at your $50 cost basis), the call expires worthless and you simply keep the $150 premium: a smaller but still real 3% return, which annualizes to 36.5% if you could repeat the trade every 30 days.

Either way, the $1.50 premium lowers your effective cost basis to $48.50. The stock would have to fall more than 3% before this position shows a loss, versus owning the shares outright with no cushion at all.

A covered call trades away unlimited upside (your gain is capped once the stock passes the strike) for premium income and some downside cushion. It tends to suit investors who are neutral to moderately bullish on a stock they already want to hold, not those expecting a big rally.

Because it caps upside in exchange for income, a covered call is often run as one leg of a larger plan. Selling cash-secured puts until you are assigned shares and then writing calls against them is the wheel, while adding a long put beneath the shares turns the position into a collar that limits the downside as well as the upside. The combined payoff of any such multi-leg position can be plotted on a single profit-and-loss diagram, and it is worth weighing how likely the call is to finish in the money before you sell.

Always check the annualized yield, not just the raw return: a short-dated option's percentage return can look small on its own but compound to a large annualized number if you're willing to repeat the trade regularly.